# Canonical: https://www.uddalak.xyz/hyperliquid-academy/article/09-perpetual-futures
# Author: Uddalak Das
# Last source: https://www.uddalak.xyz/hyperliquid-academy/article/09-perpetual-futures

---
title: "What Is a Perpetual Futures Contract?"
description: "Why perps have no expiry, how funding anchors them to spot, and where their risks come from."
track: "Foundations"
level: "Beginner"
primary_icp: ["crypto-curious professional", "trader"]
secondary_icp: ["student", "institutional decision-maker"]
reading_time: "5 min"
last_reviewed: "2026-09-07"
---

# What Is a Perpetual Futures Contract?

A perpetual futures contract, usually called a perp, is a derivative that tracks an underlying asset without a fixed expiry date. Traders can go long or short while posting margin rather than paying the full spot value of the exposure.

Perps are central to crypto trading because they combine continuous exposure, leverage, and the ability to short. Their design also creates risks that do not exist in an ordinary spot position.

```mermaid
flowchart LR
    A[Underlying reference] --> B[Perpetual market]
    B --> C[Long and short positions]
    C --> D[Funding transfers]
    D --> E[Incentive to stay near reference price]
```

## A perp is exposure, not ownership

Buying a BTC perp does not put BTC in your wallet. The account holds a contract position whose profit and loss changes as the marked value moves relative to the entry price.

This makes short exposure straightforward. A trader can open a short without first borrowing the spot asset and selling it.

It also makes leverage straightforward because the position notional can exceed the collateral assigned to support it.

## No expiry changes how price convergence works

A dated futures contract approaches a known settlement date. As expiry gets closer, its price has a natural reason to converge toward the settlement reference.

A perpetual has no such date. [Funding](/hyperliquid-academy/article/14-funding-rates) replaces that convergence mechanism by moving payments between long and short positions.

When the perp trades rich to its reference, positive funding generally makes long exposure more expensive and rewards shorts. When the perp trades cheap, funding can move in the opposite direction.

Hyperliquid settles funding hourly. The payment goes between traders rather than becoming protocol revenue.

## Margin determines how much room the position has

A perp position is supported by collateral. Initial margin determines how much capital is required to establish exposure, while maintenance margin sets the minimum buffer the account must continue to satisfy.

Higher leverage means less collateral supports the same notional position. That increases returns on posted capital when the trade moves favorably, but it also reduces the distance to liquidation.

For example, a 2% move on a $10,000 position changes its value by roughly $200 before fees and funding. If the trader posted $10,000, that is a 2% change in collateral value. If only $1,000 supports the same notional exposure, the same market move represents roughly 20% of that posted capital.

## Mark price matters more than the latest trade for risk

Hyperliquid does not use the last local trade alone to determine liquidation state. It uses [mark price](/hyperliquid-academy/article/15-mark-oracle-last-price), which incorporates broader price information and local market signals under protocol rules.

That design reduces the chance that one isolated print on the local book determines the fate of a leveraged position.

## Funding can dominate a long holding period

The cost of a perp is not only trading fees and slippage. A position held for days or weeks can accumulate meaningful funding payments.

A trader who expects a 5% price move but pays unusually expensive funding throughout the trade can realize a much smaller return than the chart alone suggests. The same mechanism can create yield for the receiving side.

## Continue reading

Read [Long, Short, Leverage, and Margin](/hyperliquid-academy/article/10-leverage-margin-long-short) for position sizing and [How Liquidations Work on Hyperliquid](/hyperliquid-academy/article/13-liquidations) for what happens when the margin buffer is exhausted.

## Sources

- https://hyperliquid.gitbook.io/hyperliquid-docs/trading/funding
- https://hyperliquid.gitbook.io/hyperliquid-docs/trading/liquidations
- https://hyperliquid.gitbook.io/hyperliquid-docs/trading/contract-specifications