On Binance's futures trading page, you'll definitely see the word "Perpetual." BTCUSDT Perpetual, ETHUSDT Perpetual... What does "Perpetual" actually mean? How is it different from traditional futures contracts? Today we'll explain this concept in the plainest terms possible.
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Starting with Traditional Futures
To understand perpetual contracts, let's first briefly explain what traditional futures are.
In traditional financial markets, futures contracts have expiration dates. For example, if you buy a March crude oil futures contract, it will be automatically settled on the delivery date in March. Whether you've profited or lost, it must be settled at expiration. If you want to maintain your position, you need to buy the next month's contract — this is called "rolling over."
This model has several inconveniences: market volatility often increases near expiration, rolling over requires extra operations and fees, and contracts for different months may have different prices.
The Birth of Perpetual Contracts
Perpetual contracts are an innovative invention of the cryptocurrency market. As the name suggests, they "renew perpetually" — there's no expiration date. Once you open a position, you can theoretically hold it indefinitely without worrying about forced delivery.
This design greatly simplifies the trading process. You only need to focus on one trading pair without switching between contracts of different months. For most traders, this experience is more intuitive and user-friendly.
But here's the question: without an expiration date and delivery mechanism, how does the contract price stay aligned with the spot price? If the contract price diverges too far from the spot price, the contract becomes meaningless.
Funding Rate — The Core Mechanism of Perpetual Contracts
This brings us to the most important concept in perpetual contracts: the Funding Rate.
The funding rate is a fee periodically settled between longs and shorts, designed to keep the contract price close to the spot price. Binance settles the funding rate every eight hours — at midnight, 8 AM, and 4 PM (UTC+8).
Here's the logic:
When the contract price is above the spot price (indicating more people are going long), the funding rate is positive, and longs pay shorts. This discourages going long, pulling the contract price down toward the spot price.
When the contract price is below the spot price (indicating more people are going short), the funding rate is negative, and shorts pay longs. Similarly, this pushes the contract price back up toward the spot price.
Through this "pay when the price deviates" mechanism, perpetual contract prices consistently fluctuate around the spot price with typically minimal deviation.
What the Funding Rate Means for You
The funding rate directly affects your trading costs and returns.
For example: you hold a $10,000 USDT Bitcoin long position, and the current funding rate is 0.01%. At settlement time, you need to pay 1 USDT to shorts. Three settlements a day means 3 USDT, which adds up to about 90 USDT per month.
That may seem small, but if the funding rate surges to 0.1% or higher during a bull market, the same position would cost you 30 USDT per day, or 900 USDT per month. That's a significant holding cost.
Conversely, if you're short and the funding rate is positive, you receive money at each settlement. Some strategic traders specifically exploit high funding rates to earn returns while hedging directional risk through other means.
On the Binance App, you can see the current funding rate and a countdown to the next settlement at the top of the futures trading interface, keeping this important information at your fingertips.
Mark Price and Last Price
In perpetual contract trading, you'll notice two prices: the Last Price and the Mark Price.
The Last Price is simply the current transaction price — that's straightforward.
The Mark Price is a reference price calculated from a weighted average of spot prices across multiple exchanges. Binance uses the Mark Price to calculate your unrealized PnL and determine whether to trigger liquidation.
Why not use the Last Price directly? Because the Last Price can be manipulated by large trades in a short period. If someone deliberately dumps the price, then profits from buying at low prices after others get liquidated, that's unfair to regular traders. Since the Mark Price references data from multiple exchanges, it's very difficult to manipulate, better protecting traders' interests.
USDT-Margined and Coin-Margined
Binance's perpetual contracts come in two types: USDT-Margined and Coin-Margined.
USDT-Margined contracts use USDT as margin and settlement currency. Your profits and losses are calculated in USDT, and your account balance is in USDT. This is the type most traders use because the calculations are intuitive and settlement is convenient.
Coin-Margined contracts use the corresponding cryptocurrency as margin. For example, for a BTC/USD contract, you need Bitcoin as margin, and profits and losses are settled in Bitcoin. This type is better suited for people who hold a specific cryptocurrency long-term while wanting to trade futures.
For beginners, USDT-Margined contracts are the friendlier choice because PnL is clear at a glance without the added complexity of margin currency price fluctuations.
Order Types for Perpetual Contracts
In Binance perpetual contract trading, you can use various order types:
Limit Order: You specify a price, and the order only executes when the market reaches that price. Suitable when you have a clear expectation for entry price.
Market Order: Executes immediately at the current best market price. Fastest speed but may have some slippage, especially during volatile markets.
Stop-Limit and Stop-Market Orders: The system automatically places an order when the price reaches your set trigger price. These are important tools for risk management.
Take Profit/Stop Loss Orders: You can set take profit and stop loss prices at the same time you open a position, letting the system automatically manage your holdings.
Trailing Stop Order: The stop price automatically adjusts as the price moves in your favor, helping you lock in profits while giving the trend more room to develop.
Practical Use Cases for Perpetual Contracts
Scenario One: Short-term trading. You analyze and believe Bitcoin may rise in the next few hours, so you open a 10x leveraged long position. After a 2% price increase, you close the position for profit. The entire process might take just a few hours.
Scenario Two: Trend following. You determine Ethereum is in an uptrend, open a 3x leveraged long with a stop loss set, and let profits run. You might hold the position for days to weeks. In this case, you need to watch the cumulative cost of funding rates.
Scenario Three: Hedging. You hold a large amount of spot Bitcoin that you don't want to sell but are worried about short-term price drops. So you open an equivalent short position in perpetual contracts to lock in the current value. Once the market stabilizes, you close the short.
Things to Note When Using Perpetual Contracts
First, while perpetual contracts have no expiration date, this doesn't mean you can hold positions mindlessly. Funding rates will continuously consume your margin, and if you hold a losing position long-term, you may eventually get liquidated.
Second, leverage is a standard feature of perpetual contracts, but don't get greedy with high multiples. High leverage means even small price movements can blow up your account.
Third, perpetual contract trading volume is usually much larger than spot, and price volatility is more intense. During extreme market conditions (such as cascading liquidations), prices may experience sudden sharp deviations.
Fourth, before you start trading, make sure you fully understand the relationship between margin, leverage, and liquidation price. Binance provides a futures calculator tool to help you simulate various scenarios before opening a position.
Perpetual contracts are a powerful trading tool. Only after understanding how they work can you better use them to achieve your trading goals. Don't rush into the market — build a solid foundation first.