A perpetual contract is a leveraged derivative that tracks the price of a cryptocurrency without an expiry date. It uses a funding rate mechanism to stay aligned with the spot price and settles in cash rather than physical delivery. Traders can hold long or short positions indefinitely, provided they meet margin requirements. BitMEX pioneered the perpetual swap in 2016, and it remains the most widely traded instrument in crypto derivatives.
How Does A Perpetual Contract Work?
A perpetual contract is a type of crypto derivative that allows traders to speculate on the price of an underlying asset without owning it. Unlike a standard futures contract, a perpetual contract never expires. There is no fixed settlement date, so positions remain open until the trader closes them or they are liquidated.
Perpetual contracts are cash-settled. Upon closing a position, only the profit or loss (PnL) is exchanged between counterparties. No physical delivery of the underlying cryptocurrency takes place.
Because there is no expiry, perpetual contracts use a funding rate mechanism to keep the contract price aligned with the underlying spot price. This funding rate is a small periodic payment exchanged between long and short position holders, typically every eight hours.
The funding rate ensures that the perpetual contract price does not deviate significantly from the spot price over time, effectively replicating the price convergence that occurs naturally in traditional futures at settlement.
How Does the Funding Rate Keep the Price Anchored to Spot?
The funding rate adjusts dynamically based on the relationship between the perpetual contract price and the spot index price:
- When the perpetual price trades above spot (premium): The funding rate turns positive. Long position holders pay short position holders. This discourages further buying and incentivises selling, pushing the contract price back down towards spot.
- When the perpetual price trades below spot (discount): The funding rate turns negative. Short position holders pay long position holders. This discourages further selling and incentivises buying, pushing the contract price back up towards spot.
| Scenario | Funding Rate | Payment Direction | Market Effect |
|---|---|---|---|
| Perpetual > Spot (premium) | Positive (+) | Longs pay shorts | Pushes price down towards spot |
| Perpetual < Spot (discount) | Negative (-) | Shorts pay longs | Pushes price up towards spot |
On BitMEX, the funding rate is exchanged every eight hours, resulting in three funding payments per 24-hour cycle. The current and predicted funding rates are displayed on each contract’s trading page.
What Are the Key Features of Perpetual Contracts on BitMEX?
BitMEX perpetual contracts share several defining characteristics:
- No expiry date: Positions remain open indefinitely, removing the need to roll over contracts at settlement.
- High leverage: BitMEX offers up to 250x leverage on select perpetual contracts, enabling capital-efficient position sizing.
- 24/7 trading: Perpetual contracts trade around the clock, matching the continuous nature of the underlying crypto spot markets.
- Cash settlement: All PnL is settled in the margin currency (Bitcoin or USDT, depending on the contract type). No physical delivery occurs.
- Multiple contract types: BitMEX lists inverse perpetuals (settled in XBT), linear perpetuals (settled in USDT), and quanto perpetuals (settled in XBT with a fixed multiplier).
For full specifications on all available perpetual contracts, visit the BitMEX Perpetual Contracts Guide.