Crypto Futures: The Perpetual Never Settles
Crypto futures are contracts on a coin's price, and most are perpetual, meaning they never settle. A funding payment passed between long and short holders every few hours keeps the contract price near the spot price, and it is a continuous cost or credit to holding one.
Covered on this page, for traders outside the US: Blofin, WEEX and BYDFi.
How it works
A futures contract is an agreement on a future price. In this market most of them are perpetual, which means the agreement has no end date at all.
That removes the mechanism that normally keeps the price honest. A conventional futures contract converges on the spot price because it settles; one that never settles has nothing pulling it back.
So a funding rate is used instead. When the contract trades above spot, holders of long positions pay holders of short ones; when it trades below, the payment reverses. That incentive is what keeps the two prices together.
The payment happens every few hours, continuously. It is a genuine cost or credit to holding, and over weeks it can exceed the price move the position was opened for. Nobody mentions it when the position is opened, and it is the first thing to check before holding one for any length of time.
Leverage and liquidation
The leverage available here has no equivalent in regulated markets. Multiples that would be prohibited elsewhere are offered by default, and the interface makes selecting them trivial.
And the consequence is liquidation rather than a margin call. There is no notice period and no conversation — the position is closed automatically the moment the margin is insufficient, at whatever price is available.
Forced closes push the price further. Each liquidation is a market order in the same direction, which moves price toward the next cluster of liquidation levels. That cascade is the mechanism behind the very fast moves this market is known for, and it is structural rather than manipulative.
In practice
Volume peaks during cascades. Which is also when spreads are widest and fills are worst, so the average trade during a violent move is executed considerably worse than the chart suggests.
Over weeks the funding dominates. A correct directional view can finish flat or negative once the payments are counted, which makes these instruments genuinely short-term tools.
Weekend moves happen into an empty book. There is no close, so a gap here is a jump through thin liquidity rather than a repricing at an open.
A stop has to trigger before the liquidation level. At high leverage those two levels are very close together, which leaves almost no room for a stop to work as intended.
Ordinary trading costs apply on top. Every round trip pays the spread and the exchange’s fee, and with leverage those are charged on the full position rather than on the margin posted.
Liquidity disappears exactly when it is needed. The book that looked deep at rest empties in seconds once forced selling starts, and that is when your order arrives.
One consequence of continuous funding is worth stating as a strategy rather than a warning: the payment can be collected. Holding the side that receives funding, hedged against an equivalent spot position, produces the payment with the price exposure removed — an arrangement institutions run at scale.
It is not free money and it is not simple. It requires capital on both sides, it costs two sets of trading fees, the funding rate can reverse, and the hedge has to be maintained through moves that trigger margin requirements. But it explains where a large part of the volume comes from, and it is a better account of who is on the other side of your trade than any story about direction.
What crypto futures are not
They are not conventional futures. Most never settle.
They are not free to hold. Funding is paid continuously.
They are not a leveraged spot position. The liquidation rules differ.
And they are not manipulated when they cascade. That is the design.
How this connects
A future is a contract, not the asset. Trading crypto futures means never holding the coin, which is the whole point and the whole risk.
Leverage is the defining feature. It multiplies both directions, so position sizing stops being good practice and becomes the thing that decides whether the account survives.
Liquidation is the mechanism that has no equivalent in spot. Below a maintenance threshold the position is closed for you, at the market, regardless of what you intended.
Funding rates are the ongoing cost on perpetual contracts, paid periodically between long and short - a carrying cost with no counterpart in owning the asset.
And the venue matters more than in equities. Exchange terms, eligibility and custody differ sharply, and several exclude US persons outright.
When it fails
In a range funding is the only thing that happens. The price ends where it started and one side has paid the other continuously for weeks, which is the clearest demonstration of what the instrument charges for.
The second failure is sizing by leverage rather than by risk. Choosing a multiple and then a position is backwards; the position should follow from the distance to the stop.
A third is holding a directional view for weeks. The funding cost was designed for a different holding period.
A fourth is placing a stop inside the liquidation distance. At twenty times leverage a four percent move against you ends the position regardless of any order.
And a fifth is trading during a cascade. The chart shows prices that were barely available.
The original data
Of the 24,971 trading and investing videos measured for this site, 4 have “crypto futures” in the title, from 4 channels, at a median of 101,132 views.
The question: Twenty times leverage and a 4% move against you. Left?
A median of 101,132 views against Ethereum’s 13,212 is a seven-fold gap in attention — the leveraged instrument attracts vastly more interest than the asset it is a contract on, which is the reliable pattern wherever leverage is available. Before opening one, work out two numbers: the current funding rate annualized, and the percentage move that liquidates your position. Both are displayed, both take seconds, and together they describe the trade far better than any chart does.
Related
Futures covers how a conventional contract works and why settlement matters. Leverage trading is the mechanism and its arithmetic. And crypto is the underlying asset class.
Understand funding before holding a perpetual position for any length of time. A view that turns out to be right can still finish roughly flat if you have paid the other side every eight hours for the privilege. The view can be correct and the instrument can still eat it.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money. Some links on this page earn a commission if you buy through them. It costs you nothing and it does not decide what appears here or in what order — how these pages are made is set out in our methodology.