Perpetual futures are futures contracts with no fixed expiry date.
Perpetual futures are futures contracts with no fixed expiry date. Instead of converging to spot through final settlement on a delivery date, they use regular funding payments between long and short positions to keep the contract price anchored near the underlying spot market.
The core idea is continuous exposure without expiration. A trader can hold a perpetual contract beyond the calendar limits of a dated future because the contract does not settle on a preset maturity. The mechanism that replaces expiry is funding. Funding is a periodic cash flow exchanged between participants, and its direction depends on whether the perpetual contract is trading above or below the reference spot market.
When the perpetual price trades above spot, the contract is at a premium. In that case, funding is positive, so longs pay shorts. That payment creates a cost to holding the rich side of the market and encourages the perpetual price to move back toward spot. When the perpetual price trades below spot, the contract is at a discount. In that case, funding is negative, so shorts pay longs. That creates a cost to holding the cheap side of the market and again encourages the contract price to move back toward spot.
A funding payment is calculated from position value and the funding rate. In a worked example, if a position has a notional value of one hundred thousand dollars and the funding rate for the interval is zero point zero one percent, the payment is ten dollars because one hundred thousand dollars multiplied by zero point zero zero zero one equals ten dollars.
The reference for spot is typically an index price built from underlying cash markets. The perpetual contract can trade away from that index during normal market activity, but the funding process is designed to reduce persistent gaps between the contract price and the index price. This is why perpetual futures can remain open ended while still tracking the underlying market.
Fair price marking adds another layer to this structure by separating mark price from the last traded price. The purpose of the mark is to value positions for unrealised profit and loss and liquidation logic using a price that is less sensitive to short lived trade spikes. The mark is tied to the index and a basis term rather than simply using the latest execution price.
In that framework, the relationship between index, premium, and fair value can be expressed as an adjusted price around the index. In a worked arithmetic illustration, if the index price is twenty thousand dollars and the premium basis is zero point five percent, the fair value is twenty thousand one hundred dollars because twenty thousand dollars multiplied by one point zero zero five equals twenty thousand one hundred dollars. This shows how the contract can be marked using the spot anchored index plus a basis adjustment instead of a potentially noisy last trade.
Taken together, funding and fair price marking explain why perpetual futures behave like a continuous derivative linked to spot. Funding transfers value between longs and shorts when the contract drifts away from the reference cash market, and fair price marking uses the index and basis to mark positions in a way that reflects that relationship. The result is a futures contract with no expiry that maintains alignment with spot through recurring payments and spot anchored valuation.
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