Perpetual futures, also called perpetual swaps or “perps,” are futures contracts with no expiry date. Unlike traditional futures, which settle on a set date, a perp stays open for as long as you have enough margin to support it.
A recurring payment between buyers and sellers, called the funding rate, keeps a perp’s price close to the asset’s actual market price (the spot price). Perps started in crypto, but you can now trade them on stock indices and metals too.
How are perpetual futures different from regular futures?
A perpetual future lets you take a position on an asset’s price without owning the asset. You go long if you think the price will rise, or short if you think it’ll fall. That part works like any futures contract. It differs from a traditional futures contract in two ways:
It never expires. A traditional futures contract has a set end date. A perp doesn’t, so your position stays open until you close it or it’s liquidated.
It’s priced differently. To hold a traditional futures contract past its end date, you roll it over into the next contract. A perp has nothing to roll, so it uses a funding rate instead: a small payment between traders, typically every 8 hours (more on that below).
Perpetual futures | Traditional futures | |
|---|---|---|
| Expiry | None | Fixed date |
| Leverage | You choose, up to a maximum set for each contract | You choose, up to a maximum set by each contract’s margin requirement |
| What keeps the price near spot | Funding rate | Price converges at expiry |
| Rollover | Not needed | Needed to stay in the trade |
| Cost of holding | Recurring funding payments | Rollover costs at each expiry |
| Markets | Crypto, stock indices, metals | Commodities, stock indices, interest rates, currencies |
| Trading hours | Often around the clock | Nearly 24 hours a day, 6 days a week |
| Settlement | Cash | Cash or physical delivery |
How perpetual futures work
A traditional future’s price moves toward the asset’s spot price as its expiry date gets closer, because on that date the two have to match. A perp never expires, so it needs another way to stay close to the spot. That’s the job of the funding rate. Your leverage, the mark price, and your margin then decide how much you can gain or lose, and when a position gets closed.
The funding rate
The funding rate is a recurring payment between traders who are long and traders who are short. When the perp trades above the spot price, longs pay shorts. When it trades below, shorts pay longs. Paying to stay on the crowded side encourages some traders to close out, which pulls the price back toward spot. Funding is typically settled every 8 hours, but could be more frequent so it’s important to check.
For you, funding is an ongoing cost of holding a position, or an ongoing payment if you’re on the receiving side. It’s charged on the full value of your position, not just your margin. Say you hold a long position worth $5,000 USD and funding is 0.01% for the period. That period costs you $0.50 USD. That’s tiny on its own. Over a hold of several days or weeks, though, it adds up, and it can eat into a trade that’s going your way.
Choosing your leverage
Leverage on a perp is a multiple you choose when you open a position. At 5x, $1,000 of margin controls a $5,000 position.
Each market sets its own maximum, and that maximum tracks volatility. More volatile assets get lower caps, because a smaller price swing can wipe out your margin. Large, heavily traded markets tend to allow higher multiples than small, thinly traded ones.
Mark price and index price
The index price is the average spot price of the asset across several major exchanges. The mark price is a smoothed value based on the index, and it’s what your open position is valued at. Using the mark price instead of the last trade on one exchange means a brief spike on a thin order book doesn’t distort what your position is worth.
Isolated and cross margin
Your margin mode decides how much of your money stands behind a position.
Isolated margin: Only the margin you assign to that position is at risk. If the trade goes badly, the loss stops there.
Cross margin: Your whole account balance backs the position. That makes any single position less likely to be liquidated, but it puts your full balance on the line.
Liquidation
Liquidation is when the platform automatically closes your positions because your account no longer has enough margin to support them. Platforms watch the risk in your account continuously. That includes how much leverage you’re using, how much exposure you have, and how much margin is left compared with the minimum needed to keep positions open (called the maintenance margin). If your margin falls below that minimum, positions get closed, usually at a loss and often with a fee.
Leverage decides how much room you have. At 10x, a price move of about 10% against you is enough to erase your margin, and liquidation usually happens before that point.
How perpetual futures compare with options
If you trade options, perps will feel simpler in some ways. There are no greeks to manage, no time decay, and no strike price to pick. Instead, you have one ongoing cost, funding, and a leverage multiple you choose.
Perpetual futures | Options | |
|---|---|---|
| Expiry | None | Fixed date |
| Time decay | None | Erodes value toward expiry |
| Strike price | None | Required |
| What you manage | Funding and leverage | Greeks, volatility, strike price, time to expiry |
| Main ongoing cost | Funding payments | Time decay and premium |
| Maximum loss | Can exceed your margin | For buyers, the premium paid |
The biggest difference is how much you can lose. When you buy an option, the most you can lose is the premium you paid. With a leveraged perp, a sudden price gap can cost you more than the margin you put up.
What Canadian traders should know
How are perpetual futures taxed in Canada?
Gains and losses on perps are taxable, and the tricky part is how they’re classified. If your trading counts as business income, all of your gains are taxable. If it counts as capital gains, only part of them are. Frequent, active trading in derivatives is generally treated as business income, but the Canada Revenue Agency (CRA) looks at the facts of each case.
Record-keeping takes some work. Every funding payment is a separate cash flow, on top of every entry, exit, and currency conversion. Keep detailed records, and talk to a tax professional if you’re not sure how your trading will be treated.
Currency exposure
Most perps are priced, margined, and settled in U.S. dollars. If you fund your trades with Canadian dollars, your return depends on the exchange rate when you convert in and when you convert back. A trade that makes money in USD can make less, or even lose money, once it’s converted back to CAD.
Can you hold perpetual futures in a TFSA or RRSP?
No. A Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) can only hold qualified investments, and leveraged derivatives like perps don’t qualify. Holding a non-qualified investment in a registered account can trigger tax penalties, so perps are held in non-registered accounts.
A worked example
Say you put up $1,000 USD of margin and choose 5x leverage, which gives you a $5,000 USD position. Funding is 0.01% every 8 hours (about 0.03% a day), and you’re on the side that pays. That’s roughly $1.50 a day, or $15 over a 10-day hold.
If the price rises 10%: Your position gains $500, and your margin grows to about $1,500. That’s a 50% return on your $1,000, minus the $15 in funding.
If the price falls 10%: Your position loses $500, and your margin drops to about $500. The $15 in funding comes off on top of that.
If the price falls about 20%: At 5x, that’s enough to wipe out your full $1,000. In practice, your position would be liquidated before it got that far
Leverage cuts both ways. The same 10% move that earns you 50% can also cost you 50%.
The risks of perpetual futures
Liquidation: At high leverage, a modest price move against you can close your position automatically and lock in the loss.
Funding costs: Funding is charged for as long as you hold a position, so a long hold can eat into even a profitable trade.
Leverage: It magnifies losses as much as gains, and the more you use, the less room you have before liquidation.
Around-the-clock markets: Many perps trade 24/7, so prices can move sharply overnight or on a weekend when you’re not watching.
Perps are built for active traders who watch their positions closely. If you’re saving for retirement or another long-term goal, this isn’t the tool for it.
