# Perpetual Swap ⎊ Area ⎊ Resource 2

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## What is the Mechanism of Perpetual Swap?

The perpetual swap is a derivative instrument that allows traders to speculate on the price movement of an asset without a fixed expiration date. Its core mechanism involves a funding rate, which is a periodic payment exchanged between long and short position holders. This rate ensures that the perpetual swap price remains closely aligned with the underlying spot market price, preventing significant divergence over time.

## What is the Arbitrage of Perpetual Swap?

The funding rate mechanism creates arbitrage opportunities when the perpetual swap price deviates from the spot price. If the swap trades at a premium, arbitrageurs can profit by simultaneously buying the spot asset and shorting the perpetual swap, collecting the positive funding rate. This activity helps to stabilize the market and maintain price parity between the derivative and the underlying asset.

## What is the Risk of Perpetual Swap?

Trading perpetual swaps involves specific risks, including high leverage and the uncertainty of funding rate payments. The funding rate can fluctuate significantly based on market sentiment, potentially leading to unexpected costs for traders holding positions for extended periods. Liquidation risk is also heightened due to the leveraged nature of these contracts, requiring careful margin management.


---

## [Blockchain Verification Ledger](https://term.greeks.live/term/blockchain-verification-ledger/)

## [Pre-Transaction Solvency Checks](https://term.greeks.live/term/pre-transaction-solvency-checks/)

## [Adversarial Capital Speed](https://term.greeks.live/term/adversarial-capital-speed/)

## [Real Time Margin Monitoring](https://term.greeks.live/term/real-time-margin-monitoring/)

## [Optimistic Systems](https://term.greeks.live/term/optimistic-systems/)

## [Greeks Based Portfolio Margin](https://term.greeks.live/term/greeks-based-portfolio-margin/)

## [Real Time Capital Check](https://term.greeks.live/term/real-time-capital-check/)

## [Funding Rate Manipulation](https://term.greeks.live/term/funding-rate-manipulation/)

---

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**Original URL:** https://term.greeks.live/area/perpetual-swap/resource/2/