How Perpetual Futures Actually Work (And Why They Don’t Expire)

Perpetual futures have become one of the most widely used derivatives in crypto markets, yet they are often misunderstood. On the surface, they look similar to standard futures contracts. Underneath, they behave very differently — especially when leverage and holding costs come into play.

Unlike traditional futures, perpetual contracts do not expire. There is no settlement date, no rollover, and no forced convergence event. That design choice removes friction, but it also introduces a different set of mechanics that quietly reshape risk over time.

Understanding why perpetual futures don’t expire — and what replaces expiration — is essential for anyone trying to assess leverage risk realistically.

What Perpetual Futures Are (In Simple Terms)

Perpetual futures, often called perps, are derivative contracts that allow traders to gain exposure to an underlying asset without owning it directly. They are most commonly used in crypto markets, where they offer continuous exposure and easy access to leverage.

Unlike spot markets, perpetual futures allow traders to control a position that is larger than their deposited capital. Unlike traditional futures, they can be held indefinitely.

At a basic level, perpetual futures share a few defining characteristics:

• They do not have an expiration date
• They are commonly traded with leverage
• They are designed to track the spot price

• Positions can remain open as long as margin requirements are met

This combination is what makes perpetual futures attractive — and also what makes their risk profile easy to misjudge.

Why Traditional Futures Expire — And Perpetuals Don’t

To understand perpetual futures, it helps to start with why traditional futures contracts expire in the first place.

In regulated futures markets such as those operated by CME Group, contracts are designed around settlement. A futures contract represents an agreement to buy or sell an asset at a specific date. As that date approaches, the futures price naturally converges toward the spot price. Expiration is what anchors the contract.

Perpetual futures remove that anchor.

Instead of relying on settlement to keep prices aligned, perpetual contracts rely on a continuous adjustment mechanism. This allows traders to avoid rolling positions forward every few months, but it also means that price alignment has to be enforced in another way.

The difference becomes clearer when comparing the two side by side.

By removing expiration, perpetual futures shift risk from discrete moments (settlement and rollover) to a continuous process that operates in the background.

The Mechanism That Makes Perpetuals Work: Funding Rates

Without expiration, perpetual futures need another way to stay close to spot prices. That role is filled by funding rates.

Funding is a periodic payment exchanged between long and short traders. It is not a fee paid to the exchange. Instead, it redistributes cost between market participants depending on how the perpetual contract is trading relative to spot.

In practical terms:

• When perpetual prices trade above spot, funding is usually positive and longs pay shorts
• When perpetual prices trade below spot, funding is usually negative and shorts pay longs
• Payments occur at fixed intervals (often every 8 hours)

• Funding is calculated on position notional, not margin

Major crypto derivatives venues such as Binance, OKX, and Bybit publish their funding formulas openly, treating the mechanism as part of market infrastructure rather than a revenue source.

Funding replaces expiration. Instead of forcing convergence at a single point in time, it applies pressure continuously, nudging prices back toward spot while quietly charging traders for maintaining crowded positions.

How Perpetual Futures Change Risk Compared to Regular Futures

This structural difference has meaningful consequences.

In traditional futures markets, risk resets periodically. Contracts expire, positions are rolled, and exposure is re-evaluated. In perpetual futures, risk does not reset. It accumulates.

Because funding is charged repeatedly, holding a leveraged position through sideways or choppy conditions can erode capital even when price appears stable. Margin buffers shrink, liquidation thresholds move closer, and small adverse moves start to matter more than traders expect.

This is why liquidation events in crypto markets often appear sudden from the outside. The price move that triggers liquidation is frequently not extreme. The pressure has been building long before, through leverage, funding, and exposure interacting quietly in the background.

Why Expiry Changes Risk: The Structural Difference Between Futures and Perpetuals

The absence of expiration is often framed as a convenience. In practice, it fundamentally reshapes how risk behaves.

Risk-focused explanations of the difference between futures versus perpetual contracts, such as those from Leverage.Trading, show how the absence of expiry changes when costs accumulate and when liquidation risk surfaces. Grasping how futures contracts and perpetuals are structured differently helps explain why leveraged positions can fail even without dramatic price movement.

Traditional futures force traders to confront time. Perpetuals allow time to pass unnoticed — while costs continue to accumulate.

That distinction is one of the most commonly overlooked sources of leverage risk in crypto derivatives markets.

Why Understanding Perpetual Futures Mechanics Matters

Most traders who lose money using leverage do not do so because they misunderstood direction. They do so because they misunderstood structure.

Perpetual futures reward precision, patience, and awareness of carrying costs. They punish urgency, overconfidence, and the assumption that “no expiration” means “no pressure.”

As crypto derivatives markets mature and attract a wider range of participants, these mechanics matter more, not less. Perpetual futures are powerful tools — but only when their structure is understood as clearly as their price charts.