Perpetual Contracts vs. Expiring Futures
In crypto trading, you'll encounter two main types of futures: perpetual contracts (perps) and expiring (traditional) futures. Each has distinct mechanics, costs, and use cases.
Traditional Expiring Futures
Expiring futures have a settlement date — the contract expires on a specific date and settles to the underlying asset's price at that time.
Key characteristics:
- Fixed expiration (weekly, monthly, quarterly)
- Price can trade at a premium or discount to spot (called basis)
- No funding rate payments
- Settlement is automatic at expiry
- Used heavily in traditional markets (CME, CBOT)
The basis — the difference between futures price and spot price — tends to converge toward zero as expiration approaches. This creates opportunities for basis trading (also called cash-and-carry arbitrage).
Perpetual Contracts
Perpetual contracts, invented by crypto exchange BitMEX, have no expiration date. You can hold a position indefinitely. To keep the perpetual price anchored to spot, exchanges use a mechanism called the funding rate.
Key characteristics:
- No expiration date
- Funding rate payments every 8 hours (typically)
- Price closely tracks spot
- Most popular derivatives product in crypto
- Higher liquidity than expiring futures on most exchanges
The Funding Rate Mechanism
The funding rate is a periodic payment between longs and shorts:
- Positive funding rate: Longs pay shorts → market is bullish (perp price > spot)
- Negative funding rate: Shorts pay longs → market is bearish (perp price < spot)
The rate is typically calculated every 8 hours and is proportional to your position size. During strong trends, funding rates can become significant — sometimes 0.1% or more per 8 hours, which compounds to substantial costs over time.
Example: Holding a $100,000 long position at 0.05% funding rate = $50 paid every 8 hours = $150/day = $4,500/month in funding costs alone.
Comparison Table
| Feature | Perpetual Contracts | Expiring Futures | |---------|-------------------|-----------------| | Expiration | None | Fixed date | | Funding costs | Yes (every 8h) | No (but basis exists) | | Price tracking | Close to spot | May trade at premium/discount | | Liquidity | Generally higher in crypto | Lower for far-dated contracts | | Complexity | Simpler to manage | Need to roll positions | | Best for | Active trading, day/swing | Hedging, basis trading |
When to Use Each
Choose perpetual contracts when:
- Day trading or short-term swing trading
- You want simplicity and maximum liquidity
- Funding rates are favorable to your direction
Choose expiring futures when:
- Hedging with a specific time horizon
- Funding rates are working against you
- You want to capture basis spread
- You're executing a cash-and-carry arbitrage strategy
Rolling Positions
If you're using expiring futures for longer-term positions, you need to roll — close the expiring contract and open a new one in the next expiration cycle. This incurs transaction costs and potential slippage. Perpetual contracts avoid this entirely.
Key Takeaways
- Perpetual contracts have no expiration but charge funding rates
- Expiring futures settle on a fixed date with no ongoing funding costs
- Funding rates keep perp prices anchored to spot
- Most crypto traders use perpetuals for their liquidity and simplicity
- Watch funding rate costs — they can significantly eat into profits on longer holds