What a Perpetual Future Is

3.1 A future that never ends

"Imagine a futures contract with no expiry date," said Hash. "You can hold it for a minute or a year. No rolling, no settlement date. Just a contract that tracks the price of bitcoin, with leverage, open around the clock."

"That sounds perfect," said Mint. "What's the catch?"

"The catch is the one we found in the last chapter," said Hash. "Without expiry, nothing forces the contract's price to meet the real price. Perps solve that with a clever mechanism. But first, let's understand what you're actually holding."

3.2 The perpetual future

A perpetual future, or perp, is a futures contract with no expiry date. It's designed to track the spot price of its underlying asset as closely as possible, for as long as you hold it.

	Futures with expiry	Perpetual futures
Expiry	Yes, on a set date	Never
What keeps it near spot	Convergence at expiry	Funding payments (Chapter 7)
Rolling needed	Yes, to hold longer	No
Main cost of holding	Basis, paid once per contract	Funding, paid periodically
Popularity in crypto	Significant, especially with institutions	The most traded crypto instrument

The perpetual swap design was popularised by crypto exchanges in the mid-2010s and quickly became the dominant way to trade crypto with leverage.

3.3 What you hold

When Mint opens a long perp position on BTC, Mint doesn't own bitcoin. Mint holds a contract whose profit and loss follows bitcoin's price.

Position detail	Example
Market	BTC perpetual, quoted in USDT
Direction	Long
Size	0.1 BTC
Entry price	$100,000
Notional value	0.1 × $100,000 = $10,000

Notional value is the full size of the position in dollar terms. Profit and loss is based on notional, not on the collateral posted.

If BTC rises to $105,000:

Profit = size × (exit price − entry price) = 0.1 × ($105,000 − $100,000) = $500

If BTC falls to $97,000:

Loss = 0.1 × ($97,000 − $100,000) = −$300

For a short, the signs flip: profit when price falls, loss when it rises.

3.4 Unrealised and realised PnL

While a position is open, its profit or loss is unrealised: it changes with every price tick. When you close the position, the profit or loss becomes realised and is added to or subtracted from your account balance.

Exchanges show unrealised PnL continuously. Importantly, unrealised losses still count against your margin, which can lead to liquidation even if you haven't closed the position (Chapter 8).

3.5 Linear and inverse contracts

There are two main ways perps are structured. The difference matters more than most beginners realise.

Linear contracts (also called stablecoin-margined, or USDT-margined or USDC-margined) use a stablecoin as collateral, and profit and loss is paid in that stablecoin. This is the most common type, and the most intuitive: a $500 profit is $500.

Inverse contracts (also called coin-margined) use the underlying coin itself as collateral, and profit and loss is paid in that coin. For a BTC inverse perp, you post BTC as margin and receive or pay BTC.

	Linear (stablecoin-margined)	Inverse (coin-margined)
Collateral	Stablecoins	The underlying coin, such as BTC
PnL paid in	Stablecoins	The underlying coin
Contract size	Usually in units of the asset, like 0.1 BTC	Usually in fixed dollar amounts, like $1 or $100 per contract
Intuitiveness	High	Lower

An inverse example. Mint holds 10,000 inverse BTC contracts, each worth $1, long from $100,000 to $110,000.

Profit in BTC = contracts × (1 ÷ entry price − 1 ÷ exit price)

= 10,000 × (1 ÷ 100,000 − 1 ÷ 110,000) ≈ 0.00909 BTC, worth about $1,000 at $110,000.

So far, similar to a linear contract. The twist is in the collateral.

3.6 The hidden risk in inverse contracts

Because inverse contracts use the coin itself as margin, your collateral's value moves with the market.

Suppose Mint posts 0.1 BTC as margin and opens a long inverse position. If BTC falls, Mint loses on the position and the collateral is worth less in dollars. Losses hit twice.

On the other hand, a short inverse position with coin collateral can work as a hedge. A miner holding BTC can post it as collateral and short an equal dollar amount, locking in roughly the dollar value of their bitcoin.

Chapter 3 · Linear vs inverse contracts

Change in account value in US dollars against BTC price from $80,000 to $120,000, for $10,000 positions opened at $100,000 with $10,000 of margin. A linear long with USDT margin gains $1,000 at $110,000 and loses $1,000 at $90,000. An inverse long with 0.1 BTC as margin moves twice as much, gaining $2,000 at $110,000 and losing $2,000 at $90,000, because the position and the collateral both move with the price. An inverse short with 0.1 BTC as margin stays flat at about $0, a dollar hedge.

"So inverse contracts are great for some situations and dangerous for others," said Mint.

"And confusing for beginners," said Hash. "Unless you have a specific reason to use inverse contracts, start with linear ones. Most examples in this module use linear contracts."

3.7 Contract specifications

Every perp market publishes contract specifications. Before trading any perp, read them.

Specification	Why it matters
Contract type	Linear or inverse
Contract size and minimum order	How small you can trade
Maximum leverage	Often tiered: lower maximum leverage for larger positions
Margin requirements	Initial and maintenance margin rates (Chapter 4)
Funding interval	How often funding is paid, such as every 8 hours or hourly (Chapter 7)
Funding rate caps	Limits on how high or low funding can go
Mark price method	How the exchange calculates the price used for liquidations (Chapter 6)
Fees	Maker and taker fees on notional value (Chapter 11)
Trading hours	Usually 24/7, but maintenance windows exist

3.8 The puzzle

Node, ever the skeptic, returned to Hash's opening point. "So this contract has no expiry, and nothing forces it to match spot. What stops the perp from trading at $120,000 while spot is $100,000?"

"Funding," said Hash. "Every few hours, one side pays the other. If the perp is above spot, longs pay shorts until the gap closes. We'll get there in Chapter 7. First, you need to understand margin and leverage, because they determine how much funding costs you and how quickly you can be liquidated."

3.9 Try it yourself

Open the contract specifications page for the BTC perpetual on any exchange. Find whether it's linear or inverse, the maximum leverage for small and large positions, the maintenance margin rate, the funding interval, and the fees. Then calculate the profit or loss on a 0.05 BTC long from today's price if BTC moves up or down 3%.

Key takeaways from this chapter

1. A perpetual future tracks an asset's price with no expiry date, so it never needs rolling.
2. You hold a contract, not the asset. Profit and loss is based on notional value.
3. Unrealised PnL changes with price and counts against margin; realised PnL is locked in when you close.
4. Linear contracts use stablecoin collateral and stablecoin PnL; inverse contracts use the coin itself.
5. In inverse contracts, a long position's collateral loses value at the same time as the position, a double risk.
6. Always read the contract specifications before trading.
7. Without expiry, perps need another mechanism, funding, to stay close to spot.