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November 20, 2025
Introduction
Perpetual futures, better known as perps, let you bet on prices without worrying about contract expirations. Unlike traditional futures, you can hold a perp position as long as you want, which is why they now make up over 90% of all crypto derivatives trading.
If you want leveraged exposure, the ability to short instantly, or a way to hedge your spot holdings, understanding how perps work is very valuable.
What Are Perpetual Futures?
Perps are derivative contracts that track an asset’s price but never expire. You’re not buying Bitcoin itself, you’re trading its price movement.
The idea goes back to Robert Shiller in the early ’90s, but it wasn’t until BitMEX introduced them in 2016 that perps became a core part of crypto markets. Removing expiration dates solved a major headache: no rolling contracts, no forced settlements, just continuous exposure.
How Perps Work
Long vs. Short
Going long means you expect the price to rise.
Going short means you profit when it falls.
You choose direction, post margin, select leverage, and open the position.
Leverage
Leverage lets you control more than you deposit.
10x leverage on $1,000 gives you $10,000 in exposure.
A 10% move in your favor doubles your money but a 10% move against you wipes you out. This is why most experienced traders stick to lower leverage.
Margin & Liquidation
Initial margin: what you put down to open a trade.
Maintenance margin: the minimum required to keep it open.
If your equity falls below maintenance margin, usually during volatility periods, the exchange liquidates your position.
The Funding Rate
Funding is what keeps perp prices in line with spot prices. Every eight hours, longs and shorts pay each other depending on which side is “overcrowded.”
If perps trade above spot, longs pay shorts.
If perps trade below spot, shorts pay longs.
During strong trends, funding can get expensive. In bull markets, long positions often bleed from positive funding even if the trade is profitable on price alone.
How Traders Use Perps
Speculation
Perps are perfect for directional bets especially short-term ones because you get leverage and no expirations to manage.
Hedging
If you hold spot BTC but expect a pullback, you can short perps to offset the downside. It’s clean and instant, no borrowing required.
Arbitrage
When funding spikes, traders buy spot and short perps to capture the funding payments. This “cash-and-carry” trade was wildly profitable during 2021 mania.
Risk Management
The biggest mistakes come from oversized positions and ignoring funding costs. Successful traders size small, use moderate leverage, and set clear stop levels.
Benefits of Perps
No expirations
Easy to long and short
24/7 liquidity
High leverage
Deep markets with tight spreads
It’s everything traditional futures offer, but tuned for crypto’s nonstop environment.
Risks to Consider
Leverage cuts both ways
Liquidations happen fast in crypto’s volatility
Funding fees can quietly drain returns
Exchange risk is real: outages, freezes, and regulatory events happen
Complexity: many traders lose money simply because they misunderstand the mechanics
Perps aren’t beginner-friendly. Take time to learn the system before sizing up.
A Simpler Alternative: Bitcoin-Backed Loans
Perps are great for trading but they’re not the best tool when you simply need liquidity.
If you hold Bitcoin and want cash without selling, a Bitcoin-backed loan avoids liquidation from small market swings and doesn’t hit you with constant funding fees. It’s often more forgiving than maintaining a leveraged perp position.
Platforms like Arch let you borrow against your Bitcoin without reducing your exposure. For long-term holders who need cash but still believe in upside, this can be a cleaner and lower-stress solution than juggling perp positions or paying high funding during bull markets.
Conclusion
Perpetual futures are one of crypto’s most powerful tools. They offer unlimited holding periods, easy access to leverage, and deep liquidity. Used well, they enable sophisticated strategies across speculation, hedging, and arbitrage.
But they demand discipline. High leverage, funding fees, and liquidation risk mean perps can punish sloppy trading. If you want dynamic exposure and can manage the risk, perps are unmatched. If you simply need cash without selling your crypto, Bitcoin-backed loans through platforms like Arch offer a far more stable alternative.
About Arch
Arch is building a next-gen wealth management platform for individuals holding alternative assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrency investments are volatile and risky. Always conduct your own research before making investment decisions.