Two strangers disagree
about tomorrow's price.
One doubles their money.
The other loses everything.
Neither will ever touch the asset.
It's a perpetual futures contract.
A bet between two sides.
No expiry. No delivery. No ownership.
trades daily through perpetual futures
Crypto's largest market
is a derivative of itself.
This guide teaches you how it works —
from one trade to liquidation.
A perpetual futures contract is a bet between two traders — one long, one short. There's no actual Bitcoin changing hands. Just stablecoins flowing between two sides, with a protocol in the middle taking its cut.
Two sides. One long, one short. Their collateral rises and falls inversely. Every dollar gained by one is lost by the other. Zero sum.
The channel between them. It routes value, enforces rules, and extracts fees from every flow. It's a toll bridge, not a pipe.
The external price signal. Change it from BTC to gold and the system behaves identically — the engine doesn't know what it's pricing.
Same engine. Now add leverage. At 1x, a 10% price move shifts 10% of your collateral. At 10x, that same move shifts 100% — your side drains completely. That's a liquidation.
It doesn't change the mechanism — it changes the sensitivity. Higher leverage means the liquidation line is closer to the surface. Less room before you're wiped out.
A $10,000 position at 10x has $100,000 in notional exposure. Fees are charged on notional, not collateral. More leverage = more fees per dollar deposited.
10x long on BTC at $71,000. Watch what a 9% drop does.
Position opened. $10,000 collateral at 10x.
5x short on BTC at $71,000. A rally begins.
Short opened. $10,000 collateral at 5x.
5x long on BTC. Price rises 10%. Trader increases to 10x.
5x long opened. $10,000 collateral.
Longs dominate. Longs pay shorts +0.050% every 8 hours, compensating the minority side. This discourages new longs and attracts new shorts — gradually pushing the perp price back toward spot.
Without an expiry date, there's nothing to force the perp price back toward the real-world spot price. The funding rate is the solution: a payment that flows between longs and shorts every 8 hours, automatically correcting any imbalance.
Longs dominate. The perp price has risen above spot. Longs pay shorts a fee for being the minority side. Discourages more longs and attracts new shorts — pushing price back down.
Shorts dominate. The perp price has fallen below spot. Shorts pay longs. Discourages more shorts and attracts new longs — pushing price back up.
Two prices matter in a perp market. The mark price is what you actually trade at. The index price is the real-world spot price. When they diverge, funding corrects it.
Mark trades above index by 1.5%. Funding turns positive — longs pay shorts. Over 16 hours, the premium gets priced out.
Perp price rises above the real spot price.
Liquidations are calculated against the mark price, not the index. A single exchange can't pump their price and trigger mass liquidations — the mark is aggregated across many sources.
The speculator provides the energy. Everyone else extracts it.
Every time you open a position, someone takes the other side. Knowing who they are tells you where you sit in the food chain.
“I think the price goes up.”
The largest layer. Directional bets based on conviction, analysis, or vibes. They provide the energy that makes the market move. They also provide most of the losses.
“I already own the asset. I'm protecting my position.”
A miner locking in today's price. A fund hedging overnight risk. They go short not because they're bearish — but because they're already long in the real world. The perp is insurance, not a bet.
“I don't care about direction. I care about flow.”
A thin layer on both sides at once. They quote prices on both sides and earn the spread. Without market makers, the market would be nearly empty.
“The perp price is wrong. I'm going to fix it and get paid.”
When the perp drifts from spot, the arb trades the gap closed. They're the reason the funding rate mechanism actually works in practice.
If you're reading this, you would be the speculator. Not a warning — information. Knowing where you sit in the food chain is the difference between participating and being consumed.
Buy 1 BTC spot. Short 1 BTC perp. Price up? Spot gains, perp loses — net zero. Price down? Spot loses, perp gains — net zero. But if funding is positive, you collect it on your short. You're earning yield on nothing.
Long spot + short perp = zero directional exposure. Funding flows from longs to shorts. At 0.01% per 8h, that's ~11% APY on a delta-neutral position.
Funding can flip negative. Your yield becomes a cost. The basis can also narrow — unwinding the trade at a loss.
One of the largest sources of perp volume. Institutional capital enters not to speculate but to run this. The speculator provides the funding. The carry trader harvests it.
This engine runs on anything with a price feed.
What if a farmer in Kenya could hedge next season’s coffee price — directly, without a broker, from a phone?
What if a renter in London could long the housing index — so when rent rises, their trading gains offset the cost?
What if a solar installer could lock in tomorrow’s energy price before the grid spikes?
What if freight rates, carbon credits, rainfall, concert tickets — anything with a measurable price — had a liquid, permissionless futures market?
The engine is built.
The rails are live.
What you plug into it
is up to you.
10 questions. No going back.
Your result is shareable.