Crypto perpetual futures, explained

What you are holding

A perpetual future is a contract whose price tracks a coin without ever settling. You never own the coin; you hold a position whose value moves with it. There is no expiry date, which is what makes it different from a conventional futures contract and why it dominates crypto trading volume: a position can be held for an hour or a year without rolling.

Three mechanisms do the work a normal future does with an expiry date: margin, mark price and funding. Everything that goes wrong for retail traders goes wrong in one of the three.

Margin and leverage

You post a fraction of the position's value as collateral and the exchange lends the rest. At 5× leverage, a $5,000 position needs $1,000 of margin. Leverage decides how much collateral is locked up; it does not decide how big your position is. That distinction is the single most misunderstood fact in retail futures trading, and Guide 02 is about nothing else.

Two margin modes exist. Isolated margin walls off each position: only its own collateral can be lost. Cross margin lets the whole account back every position, which makes liquidation rarer but means one position can drain the others. Our book runs cross margin at a 5× setting and holds, on average, 0.30× equity in positions, so margin in use averages about 6% of the account.

Mark price and liquidation

The exchange values your position at a mark price, a blend of index prices from several spot venues, not at the last traded price on its own book. This stops a single wild print from liquidating everyone. If losses eat your margin down to the maintenance level, the exchange closes the position at market and charges a liquidation fee. On most venues that level is a few percent of position value, so a 10× isolated position is liquidated by a move of roughly 9%, a 5× position by roughly 19%.

Liquidation is avoidable by construction: keep exposure low relative to equity and place your own stop well before the liquidation price. Our book's stops sit 25% from entry on positions that are typically 7–12% of equity each; the liquidation price is never in play.

Funding: the cost nobody budgets for

Without an expiry, nothing forces the perpetual's price back to the coin's price. Funding does that job. Every eight hours on most Binance pairs (hourly on Hyperliquid), one side pays the other a small percentage of position value. When the perpetual trades above spot, longs pay shorts; when below, shorts pay longs. The rate floats with demand.

The numbers matter more than the mechanism. Across the ten largest USDT perpetuals on Binance, January 2021 to September 2026, the average rate was 0.0080% per eight hours. That sounds negligible. Compounded three times a day, it is about 8.8% a year charged to anyone who is always long. During the 2021 bull market the rate ran several times higher for months. A leveraged long held through that period paid more in funding than most strategies make.

Our own book, which holds positions for days and is short about half the time, paid 2.72% of equity a year on average, most of it in 2021. The short side did not earn it back: the book tends to be short when everyone else is, which is when rates go negative. Research note 01 has the year-by-year figures.

Fees and slippage

Binance's standard futures fees are 0.02% for orders that rest in the book (maker) and 0.05% for orders that cross the spread (taker), before discounts. Slippage, the gap between the price you saw and the price you got, is usually a few hundredths of a percent on liquid pairs and much more on thin ones or in fast markets. On our demo account, fills landed within ±5 basis points of the market price at the same minute, but waiting for a cheaper maker fill on exits cost 9–22 basis points, so the book now pays the taker fee on every exit. Note 07 has the measurement.

Added up for a systematic book that turns over about 45× equity a year: roughly 3% of equity in fees and slippage plus 2.7% in funding, before a single trade is right or wrong. Any strategy that cannot clear that hurdle by a wide margin is a donation to the exchange.

What this means if you copy a strategy

• You pay your own trading fees on every copied order, and funding on every position, whatever the lead trader's returns say.
• A leaderboard return that ignores funding overstates itself; ask whether the figure is net.
• Leverage on a lead trader's profile tells you the margin setting, not the risk. Look for exposure, or for the drawdown.

The figures above are measured on Binance USDⓈ-M perpetuals. Other venues differ in funding interval, fee schedule and maintenance margin; the mechanisms are the same.