Perpetual futures and funding
A contract with no expiry date needs something to keep it tethered to reality. That something is a payment between the two sides, and it is the running cost of holding a position.
Most crypto trading volume is not spot. It happens in perpetual futures — contracts that track a price, use leverage, and never expire. Understanding them is not optional if you intend to read anything about this market, because most of the numbers being quoted come from there.
A future that never settles
A traditional futures contract has a date. On that date it settles against the real price, which is what keeps the two tied together: however far the contract drifts, the deadline drags it back.
A perpetual has no date. Remove the deadline and you remove the tether — so something else has to do that job. That something is funding.
Funding, in one paragraph
At regular intervals, one side pays the other. When the contract trades above the spot price — more people wanting to be long than short — longs pay shorts. When it trades below, shorts pay longs. The payment makes the crowded side expensive to hold, which encourages people onto the other side, which closes the gap.
Nobody at the exchange decides the direction. It falls out of the difference between the contract and the reference price, and the money moves between traders rather than to the venue.
Funding is a cost of time, not a cost of trading
Fees are charged when you transact. Funding is charged for existing. A position held through many intervals accumulates it whether or not you touch anything, and a small rate compounds into a meaningful drag over weeks.
The interval differs by venue — some charge hourly, others every several hours — and the rate itself moves with how lopsided positioning is. During periods of one-sided enthusiasm it can rise far above its usual level, at which point holding the popular side becomes genuinely expensive. Check the interval and the current rate on the specific venue rather than assuming a number you read somewhere.
Mark price: why your screen shows two prices
Liquidation is not calculated from the last trade on that venue. It uses a mark price, derived from the spot price across several markets.
The reason is defensive. If liquidation used the last trade, a large participant could push the price briefly on one venue and trigger a wave of liquidations to buy into. Anchoring to an external reference makes that attack expensive.
The consequence for you: a violent wick on the chart may not liquidate you, because the mark price never went there. And your unrealised profit or loss is calculated on the mark price too, which is why the number sometimes disagrees with the candle you are looking at.
Open interest and positioning
Open interest is the total value of contracts currently open. Unlike volume, it counts positions rather than activity — rising open interest means new positions are being opened, falling means positions are being closed.
Read alongside funding, it describes crowding. Rising open interest with sharply positive funding means a great many people are long, paying to stay long. That is not a prediction, but it is a fact about the fuel available: a large number of leveraged positions on one side is a large number of forced sellers if the price turns, which is what makes liquidation cascades possible.
Your liquidation level is not private
Nobody knows your individual position, but the levels where clusters of leveraged positions must close are calculable from public data, and several services publish exactly that. Crowded stops are a known feature of this market, not a conspiracy theory.
When the system runs out of room
If a liquidation fills so badly that the loss exceeds the collateral, the shortfall comes from the venue's insurance fund. If that is exhausted during an extreme move, some platforms use auto-deleveraging: the most profitable, most leveraged traders on the opposite side are closed out to balance the book.
It is worth knowing this exists. It means a correct, profitable position can be closed by the mechanics of the venue rather than by anything you did — a risk with no equivalent in owning an asset outright.
Everything here is counterparty risk too
A perpetual position lives on the platform. It cannot be withdrawn to a wallet you control, so alongside market risk you are holding the risk that the venue itself fails — the risk this site returns to on every page about exchanges.
Sources
Where the factual claims on this page come from. Each was read on the date shown.