A perpetual swap (also called a perp) is the most popular derivatives instrument in cryptocurrency trading. It is a futures-like contract that allows you to speculate on the price of a crypto asset with leverage, but unlike traditional futures, it has no expiration date.
With a perpetual swap, you can take two types of positions:
- Long — you profit when the price goes up
- Short — you profit when the price goes down
Because perpetual swaps never expire, they use a mechanism called the funding rate to keep the contract price aligned with the actual market (spot) price. When the perp price is above the spot price, long traders pay short traders, and vice versa. This incentivizes traders to bring the price back in line.
Key features of perpetual swaps:
- Leverage — trade with 2x to 125x your capital, amplifying gains and losses
- No expiry — hold positions indefinitely as long as you have sufficient margin
- Both directions — profit from both rising and falling markets
- High liquidity — perps are the most traded instruments in crypto by volume
The major risk with perpetual swaps is liquidation. If the market moves against your position beyond your margin, you lose your entire collateral. Funding rate payments can also erode your position over time.
Perpetual swaps are available on exchanges like Bybit, Binance, and other platforms. They are an advanced trading tool suited for experienced traders who understand risk management and market dynamics.