Perpetual Futures Mechanics

Perpetual futures mechanics define how these unique instruments function without an expiration date. Unlike traditional futures, perpetuals use a funding mechanism to ensure their price stays close to the spot price.

If the perpetual price is above the spot price, longs pay shorts; if below, shorts pay longs. This periodic payment incentivizes traders to keep the contract price in line with the underlying asset.

Perpetuals are the most popular derivative in the crypto space, offering high leverage and continuous exposure. They are settled in stablecoins or the underlying asset, depending on the contract design.

Understanding these mechanics is essential for traders to avoid unexpected funding costs or liquidation. The system relies on the interaction between market participants and the protocol's margin engine.

It is a brilliant solution to the problem of maintaining a synthetic price without a physical delivery date. The design also allows for easy retail access to complex derivative strategies.