Perpetual Swap
A futures contract with no expiry date, kept aligned to spot price by recurring funding payments.
A perpetual swap is a futures contract that never settles. You can hold it indefinitely, which is why it dominates crypto trading. To keep its price tethered to the underlying spot market, exchanges use a funding rate: a small payment exchanged between longs and shorts every few hours.
When the perp trades above spot, longs pay shorts, nudging the price down; when it trades below, shorts pay longs. The mechanism, pioneered by BitMEX in 2016, now drives most of crypto's leveraged volume. Funding can also signal sentiment: persistently high positive funding means the crowd is heavily, perhaps dangerously, long.
Related terms
Contracts to buy or sell an asset at a set price on a future date, often traded with leverage.
DerivativesFinancial contracts whose value comes from an underlying asset rather than from holding the asset itself.
LeverageBorrowed money used to control a larger position than your own capital would allow, amplifying gains and losses.
LiquidationThe forced closing of a leveraged position when losses drop its collateral below the required minimum.