Perpetual futures (or "perps") are derivative contracts that let you speculate on asset prices without expiration dates. They're the most popular trading instrument in crypto.
What Makes Perps Different?
Unlike traditional futures that expire on a specific date, perpetual futures have no expiration. You can hold a position indefinitely.
| Feature | Traditional Futures | Perpetual Futures |
|---|---|---|
| Expiration | Fixed date (monthly/quarterly) | No expiration |
| Settlement | At expiry | Continuous |
| Price alignment | Converges at expiry | Funding rate mechanism |
| Rollover needed | Yes | No |
Why Funding Rates Exist
Without expiration, there's no natural mechanism to keep the perpetual price aligned with the spot price. Funding rates solve this problem.
💡 The Funding Mechanism
When perp price > spot price: Longs pay shorts (incentivizes shorting, pushes price down)
When perp price < spot price: Shorts pay longs (incentivizes longing, pushes price up)
Funding Rate Intervals
Funding intervals vary by exchange and by market. Common intervals include:
- 1 hour - More frequent payments, smaller amounts per period
- 4 hours - Medium frequency
- 8 hours - Traditional interval, larger payments per period
💡 The same exchange may use different intervals for different assets. JiaDX displays the correct interval for each market.
📊 Funding Payment Example
Position: Long 1 BTC at $50,000
Funding rate: +0.01% (positive = longs pay)
Payment: $50,000 × 0.01% = $5 paid
If you were short, you'd receive $5 instead.
Funding Rate Calculation
Funding rates typically have two components:
- Interest rate: Usually fixed (e.g., 0.01% per 8h)
- Premium/discount: Based on price difference between perp and spot
The formula varies by exchange, but the concept is the same: align perp price with spot price through periodic payments.
Why This Matters for Arbitrage
Funding rates create an opportunity:
- When funding is positive, shorts receive payments
- By hedging with a long position elsewhere, you can capture these payments risk-free
- Different exchanges have different rates, creating arbitrage opportunities
Key Takeaways
- Perpetual futures have no expiration date
- Funding rates keep perp prices aligned with spot
- Positive funding = longs pay shorts
- Negative funding = shorts pay longs
- Funding intervals vary by exchange (1h to 8h)
- Rate differences between exchanges create arbitrage opportunities