Perpetual Futures
Perps · Perpetual swap · Perpetual contract
A futures contract with no expiry date, which you can hold as long as you like, kept close to the spot price by funding payments between longs and shorts.
Simple explanation
Background: Korea's won exchanges (Upbit, Bithumb, Coinone and Digital X, formerly Korbit) trade spot coins only, so perpetual futures are traded on overseas exchanges such as Binance, Bybit and OKX.
A future is an agreement to buy or sell later at a set price. Most crypto futures never hand over the coin; they settle only the profit or loss from the price move. That makes it easy to go long (bet on a rise) or short (bet on a fall), usually with leverage.
Ordinary futures have an expiry date, when they settle at the spot price and end (quarterly futures expire every three months, for example). A perpetual has no expiry, so you can hold it as long as your margin lasts. BitMEX popularized it in 2016, and it is now the most traded crypto derivative.
Without an expiry, something has to pull the futures price back toward spot, and that is the funding rate. When the perpetual trades above spot, funding is positive and longs pay shorts at set times; when it trades below, funding is negative and shorts pay longs. Holding the expensive side costs money, which pulls the price back toward spot.
Binance usually settles funding every 8 hours (00:00, 08:00 and 16:00 UTC, which is 09:00, 17:00 and 01:00 Korea time). When the two prices are nearly equal, its formula sets the 8-hour rate at a default +0.01%, which is why that number shows up so often. Intervals and formulas differ by exchange and coin.
Unrealized profit and loss and liquidations are usually based on the mark price rather than the last trade. The mark price is built from an index of spot prices on several exchanges, so a brief spike on one exchange causes fewer needless liquidations. Contracts come USDT-margined (margin and profit in USDT) or coin-margined (margin and profit in a coin such as Bitcoin).
There is a link to the kimchi premium. Arbitrage that buys coins abroad and sends them to Korea loses money if the price falls in transit, so a known method is to hedge by shorting the same amount in perpetual futures. It is not as simple as it sounds: funding, fees, transfer time and foreign-exchange rules all get in the way. Also, the funding rate shows how hot the overseas futures market is, while the kimchi premium shows how hot Korea's spot market is, so reading both hints at where the buying is coming from.
Because leverage is so easy to use, a small move against you can end in liquidation, and holding for a long time means paying funding again and again. Keep in mind too that overseas exchanges are often outside Korea's investor-protection rules.
Example
Spot index price $100,000 · perpetual price $100,050 → the perpetual is +0.05% above spot (demand to go long is a little stronger)
Funding at this point +0.01% (every 8 hours) → longs pay shorts
Long position size ₩10,000,000 (the full size, including leverage)
Three settlements a day = 10,000,000 × 0.01% × 3 = ₩3,000
Held 30 days at the same rate = 3,000 × 30 = ₩90,000 (assuming the price stays the same)
If the market heats up and funding reaches +0.05%, 30 days = 10,000,000 × 0.05% × 3 × 30 = ₩450,000
※ Example numbers, for illustration only
See it on CoinGaja
- CoinGaja does not show perpetual futures prices or funding rates yet. Its kimchi premium compares Korean prices with Binance's spot (USDT market) prices, not futures:
- Kimchi Premium by coin›
- Bitcoin Kimchi Premium›
- How the Kimchi Premium is calculated›
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