Perpetuals, or "perps", are the dominant crypto derivative because they let traders hold leveraged exposure indefinitely without rolling contracts. The price is tethered to spot not by expiry but by economics: when the perp trades above spot, longs pay shorts, which discourages the crowd from pushing it further.
That convenience carries a running cost and a liquidation price. A perp held for a week in a crowded trade can pay more in funding than it would have cost in spot fees to simply own the asset.
The mistake it causes: using perps for a long-term view. If the thesis is measured in months, the position usually belongs in spot.
How a contract with no expiry stays near spot
A traditional future converges to spot because it expires. A perpetual never does, so something else has to do the work: the funding rate. When the perp trades above spot, longs pay shorts every eight hours, which makes being long progressively more expensive and pulls the price back. It is an economic tether rather than a contractual one.
What you are actually paying for
| Cost | Spot | Perpetual |
|---|
| Trading fee | Yes | Yes, usually lower |
| Funding | None | Every 8 hours |
| Liquidation price | None | Yes |
| Can hold indefinitely | Yes | Only while margin lasts |
At 0.01% funding a $10,000 perp position pays about $1,095 a year. At 0.05% it is $5,475. Because funding is charged on position value rather than on your margin, a 20x position can pay its entire margin in funding within weeks without price moving at all.
Mark price, and why your stop and your liquidation see different numbers
Most venues liquidate against a mark price derived from an index of several exchanges, not against the last trade on their own book. This is deliberate: it stops a single thin wick on one venue from liquidating everybody. It also means the price that triggers your liquidation may never appear on the chart you are watching.
When a perp is the wrong instrument
If your thesis is measured in months, you are paying carry and holding a liquidation price for no reason. Spot has neither. Perpetuals earn their keep for shorter directional trades, for hedging a spot holding, and for shorting, which spot cannot do.
What to do with this
- Check the live funding rate before holding overnight, not after.
- Know your liquidation price before you open, and keep the stop far in front of it.
- Ask whether the position belongs in spot. Often it does.
