Crypto Perpetual Contracts: Funding, Mark Prices and Liquidation Risk
Summary
Perpetual contracts provide leveraged exposure to crypto prices without an expiry date. Unlike dated futures, they rely on periodic funding payments to encourage the contract price to track spot: positive funding transfers payment from longs to shorts, while negative funding reverses the direction. The article also explains that liquidation can depend on a mark price derived from broader market data rather than the latest trade, and contrasts perpetuals with expiry futures and spot trading.
It outlines speculation and hedging as uses, and identifies leverage, volatility, recurring funding costs and liquidation as major risks. Suggested controls include stop orders, smaller positions and careful margin selection, with isolated and cross margin presented as account choices. The document gives an example funding rate and payment interval, but no systematic evidence on strategy performance, typical funding behavior or liquidation frequency. Exchange-specific claims about pricing, insurance and safeguards are assertions in the article; their effectiveness and availability may vary by platform and jurisdiction.
Key ideas
- Perpetual contracts have no expiry and use periodic funding payments to help keep contract prices near spot prices.
- Positive funding generally means longs pay shorts, while negative funding means shorts pay longs.
- Mark prices can determine liquidations and may differ from the latest traded price.
- Leverage, volatile prices and funding costs can erode margin and trigger liquidation.
- Position sizing, margin choices and stop orders are risk controls, but the document provides no performance evidence for a trading strategy.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.