Perpetual Swap

What Perpetual Swap means

A perpetual swap is a futures-style contract with no settlement date. A trader posts margin and takes a long or short position of a chosen notional size, and profit or loss accrues against the contract's mark price exactly as it would in a normal future. Because there is no expiry to force convergence with the underlying, the contract instead uses a funding mechanism: at fixed intervals, commonly every eight hours, one side pays the other to pull the contract price back toward spot.

The appeal is flexibility. Positions can be held indefinitely without rolling to a new contract month, leverage is available at levels far above regulated CFD limits on many venues, and shorting is as straightforward as going long. Liquidity in the largest perpetual contracts often exceeds that of the underlying spot market, which makes them the primary price discovery venue for crypto. Contracts may be margined in a stablecoin or in the underlying coin itself, which changes the shape of the profit and loss.

The risks are amplified versions of ordinary leveraged trading. High leverage means a small adverse move triggers liquidation, and venues liquidate automatically rather than issuing a margin call, sometimes at a worse price than the mark implies. Cascading liquidations in a volatile move can push the contract far from spot briefly. Funding costs accumulate on positions held through many intervals, and some venues apply socialised loss or auto-deleveraging that can close a profitable position without the holder's consent.