What Are Perpetual Futures?

Perpetual futures are the most useful instrument in crypto and the fastest way to blow up an account. Same contract. The difference is the order you make your decisions in.

Chad and Niko started out trading token launches before they moved to perpetual futures. In Chad's words, "you could vet a coin every way possible and some random thing would still happen at launch."

What is a perpetual futures contract, in plain English?

A contract that follows a coin's price without you owning the coin. Unlike traditional futures, it never expires. It's how most crypto traders go short and use leverage.

With no expiry, something has to stop the contract price drifting away from spot. That's the funding rate: a small payment exchanged between longs and shorts at set intervals, often every eight hours. When the contract trades above spot, longs pay shorts. Below spot, shorts pay longs. A rate of 0.01% per eight hours works out to about 0.03% a day on the full position value.

Who puts up the money on perpetual futures?

You do, just not all of it. You post margin, and leverage is the ratio between the position and that margin. Stablecoin margin lets you trade many coins from one balance. Coin margin means you post the coin itself and trade only that coin.

If losses eat through the margin, the platform closes the position at the liquidation price, calculated from the mark price rather than the last traded price. That's the platform's exit, not yours.

So what does leverage really change on perpetual futures?

An illustrative Bitcoin long. The 4-hour trend is up. On the 1-hour, equal lows at 58,000 get swept to 57,700 and price closes back above. You go long at 58,100 after the sweep.

• Invalidation: 57,500, below the sweep low. That is 600 points, about 1.03%.
• Dollar risk: 1.5% of an $8,000 account, or $120.
• Size from the stop: $120 divided by 1.03% is about $11,600 of exposure.
• The 1:3 check: the range high at 59,900 is 1,800 points away. Passes.
• Leverage last: at 3x the margin is about $3,870, at 5x about $2,320, at 10x about $1,160.

In all three cases the stop costs the same $120. Leverage only changes how much margin is tied up and how close liquidation sits: roughly a third away at 3x, a fifth at 5x, a tenth at 10x. Pick the setting that keeps liquidation far beyond your stop.

Add holding cost too. At 0.03% a day, five days of funding on $11,600 is about $17, a real slice of a $120 risk budget.

What are our perpetual futures rules?

Perpetuals power bi-directional exposure, so we can teach both sides of the market. They come after risk management, never before it:

• Isolated margin on every position, so each trade only draws on its own margin.
• Risk of 1 to 2% per trade while you're new, never more than 4%.
• Size is solved from the stop. Leverage is picked last, only to keep liquidation out of the way.
• Every trade passes the 1:3 filter and runs through the Decision Protocol.

Niko's warning is worth taping to your monitor: "X does not mean percentage. 10x means 10 times the amount. So don't think that 10x is a small amount."

Where do most people go wrong with perpetual futures?

They start with the slider. Pick 20x or 50x, build a position from whatever margin is free, and think about a stop afterwards, if at all. Now liquidation sits closer than any sensible invalidation level, and the platform decides when the trade is over. So many crypto gurus lead with the multiplier because it makes a better thumbnail.

Two quieter mistakes: cross margin lets one bad position pull on the whole balance. And funding gets ignored on positions held for weeks, until it has eaten a big part of what the trade was risking.

What should you do before your first perpetual futures trade?

Before your next trade, write the stop and dollar risk first. Only then touch leverage.

The full method lives in crypto leverage trading. For what leverage does to your liquidation price, read crypto leverage liquidation explained, and to size from the stop first, use the position size calculator.

Sources: the CFTC's futures glossary defines futures contracts and margin, and its customer advisory on virtual currency trading warns that leveraged futures accounts can amplify the risks of trading.