How Perpetual Futures Funding and Margin Shape Trading Risk
Summary
The document explains how crypto perpetual futures differ from dated futures. Perpetual contracts have no expiry or rollover, so exchanges use funding payments between long and short holders to encourage the futures price to track spot. When the contract trades above spot, longs pay shorts; when it trades below spot, shorts pay longs. The text says divergence is assessed hourly and funding is settled hourly or when a position changes.
It also describes initial and maintenance margin, and how falling below the maintenance threshold can lead to liquidation. Suggested controls include stop-losses, profit-taking rules, and systematic position sizing. The stop-loss example highlights that execution can occur beyond the trigger price in a fast market. The document gives general mechanics and illustrative examples, but no empirical tests or evidence that any particular tactic is profitable. Funding schedules, margin requirements, and liquidation rules depend on the exchange and contract, so the explanation is not a complete account of venue-specific risks.
Key ideas
- Perpetual futures have no expiry, so funding payments help keep their prices near spot.
- When a perpetual trades above spot, longs pay shorts; when it trades below spot, shorts pay longs.
- Initial margin opens a leveraged position, while maintenance margin sets a minimum balance to avoid liquidation.
- Stop-loss orders can limit intended losses, but fast markets may execute beyond the trigger price.
- Position sizing and predetermined exit rules are presented as basic controls for leveraged trading.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.