Futures Contracts vs Perpetual Futures: 6 Key Differences Explained

Futures and perpetual futures are two of the most heavily traded derivatives in the crypto market. They both let traders gain exposure to an asset’s price without owning it, but their design and risk behavior differ in ways that directly affect profitability and capital safety.

Traditional futures contracts expire on a specific date, forcing traders to settle or roll over their positions. Perpetual futures, by contrast, never expire; they rely on ongoing funding payments between longs and shorts to stay close to the spot price. This single difference changes how costs build up, how margin behaves, and how risk compounds over time.

These instruments appeal to traders because they combine flexibility and leverage. Yet the same leverage that magnifies returns also accelerates losses, often leading to forced liquidations. 

At Leverage.Trading, our calculators help traders measure exposure before acting – from funding rate projections to liquidation thresholds. Each tool is built to promote safer and more informed decisions.

Understanding the distinctions between futures contracts vs perpetual futures contracts is essential to managing risk, estimating costs, and choosing the right product for specific strategies.

What Are Crypto Future Contracts?

A crypto futures contract is an agreement to buy or sell an asset, such as Bitcoin or Ether, at a fixed price on a future date. The contract’s price moves toward the spot market price as the expiry date approaches, a process known as convergence.

Institutions, miners, and professional traders use these contracts for hedging and speculation. For example, a Bitcoin miner expecting 10 BTC in two months can sell a futures contract today to lock in the current price and protect against a drop in value. This hedging method provides predictability but ties up margin until expiry.

These contracts are well established in traditional markets for commodities and equities, and have now been adapted for digital assets on exchanges such as CME Group and Binance.

On crypto exchanges, some futures are coin-margined, meaning they’re settled in the underlying asset such as Bitcoin or Ether rather than in stablecoins. These are known as Coin-M futures contracts, and they behave slightly differently in terms of margin exposure and settlement risk.

What Are Perpetual Future Contracts?

Perpetual futures contracts function almost identically to standard futures contracts, except for one defining difference: they never expire. A trader can hold a position indefinitely, provided margin requirements are met and the position avoids liquidation.

This continuous design has made perpetuals the most traded instrument in the crypto derivatives market. But the absence of an expiry date introduces a new layer of complexity: funding.

Funding is a recurring fee exchanged between long and short traders to keep the perpetual price aligned with the spot market.

Most retail perpetuals today are USDT-margined, where the margin and settlement are both in stablecoins like Tether. These USDT-M futures contracts simplify accounting and cross-margin use but also expose traders to potential stablecoin funding imbalances when market sentiment becomes one-sided.

• When the perpetual trades above spot, longs pay funding to shorts.
• When it trades below, shorts pay funding to longs.

These payments occur multiple times per day, turning small rates into significant cumulative costs for leveraged traders. Before entering a position, model the long-term impact of carry using our Funding Rate Calculator. It projects how funding cycles affect your net P&L, allowing you to decide if a trade remains viable once costs are included.

Even though perpetuals offer unmatched flexibility, they can be unforgiving when volatility spikes. A 5 % adverse move can liquidate a 20× leveraged position, regardless of your market thesis. That’s why seasoned traders pair perpetuals with strict risk management rules and margin buffers.

Key Differences at a Glance: Futures vs Perpetual Futures

How They Work: Futures vs Perpetual Mechanics

Both crypto futures trading and perpetual futures contracts give traders leveraged exposure to digital assets without owning them outright.

Yet, beneath the surface, their mechanics differ in crucial ways from expiry and pricing to cost structure and liquidation behavior.

1. Expiry and Settlement

Standard futures have a fixed expiry date. At settlement, the contract’s price converges with the spot market. Traders must either close their position or roll it into a new contract before expiry.

Before planning a roll or expiry trade, you can model potential outcomes on our Crypto Futures Calculator. It helps estimate how price convergence and expiry timing affect realized profit and loss, especially when volatility compresses or expands into settlement.

Perpetual contracts, in contrast, have no expiry. Their open-ended structure allows continuous exposure, but it also means there’s no natural convergence. Exchanges use the funding rate to maintain alignment between the perpetual price and the spot index.

2. Price Alignment and Funding

Futures have a defined settlement price on expiry, typically derived from a reference index such as CME’s CF Bitcoin Reference Rate. This ensures that at maturity, the futures price converges with the underlying spot market.

Perpetual contracts, however, settle continuously through the funding rate mechanism. When the perpetual trades above spot, traders holding long positions pay funding to shorts; when it trades below, the payment reverses.

This ongoing exchange keeps the perpetual’s price tethered to spot, but it also introduces a variable cost that can accumulate over time.

3. Margin and Leverage

Traditional futures markets, like CME, issue margin calls when balances fall below maintenance levels. Traders have time to replenish capital.

In crypto markets, by contrast, liquidation occurs automatically once the margin threshold is breached. This automation increases both execution speed and risk, as volatile price movements can close positions before traders can react.

Effective margin management requires constant monitoring of exposure, especially when using high leverage. A margin requirement breach in crypto typically results in immediate position closure and the loss of posted collateral.

Most crypto exchanges also let traders choose between cross margin and isolated margin modes. In cross margin, all open positions share the same margin balance, which can prevent early liquidation but also exposes your entire balance to a single position’s loss. Isolated margin limits risk to one trade, which is often safer for perpetual contracts where exposure never resets. To dive deeper on how each mode works in detail, see our full guide on cross margin vs isolated margin.

4. Contract Pricing

Futures are generally quoted with reference to a spot index and may trade at a premium or discount depending on market sentiment and interest rate differentials.

Perpetual contracts also track spot closely but fluctuate around it as funding rates change. Large imbalances between long and short positions can cause pronounced funding swings, affecting overall profitability.

When to Use Futures vs Perpetuals

The choice depends on purpose, strategy duration, and capital management style.

Futures contracts are better suited for hedging and structured exposure. A miner may sell dated futures to lock in revenue for an upcoming Bitcoin payout. The expiry aligns with cash flow timing, and the known settlement date provides clarity. Futures also let institutions price and manage exposure using familiar risk frameworks from traditional finance.

Perpetual contracts, by contrast, are designed for short-term speculation and continuous exposure. They are highly liquid, easy to enter and exit, and ideal for traders who adjust positions frequently. However, perpetuals require constant monitoring because of funding payments and the absence of a natural expiry to rebalance risk.

Risks in Crypto Derivatives

Crypto derivatives trading introduces both visible and hidden risks. Understanding them is central to responsible leverage management.

1. Liquidation Risk

High leverage compresses margin buffers. Even small price movements, sometimes under 2%, can trigger automatic liquidation once the maintenance level is breached.

Unlike traditional markets, crypto venues execute liquidations instantly, often at unfavorable prices. To learn more, see our detailed guide on margin calls and how they work.

2. Funding Rate Drain

Perpetual contracts charge periodic funding payments between longs and shorts to keep prices aligned with spot.

When markets stay one-sided, these payments accumulate, quietly eroding returns. A deeper explanation of this mechanism is available in our article on funding rate behavior in futures.

3. Exchange Outages and Volatility Gaps

Because crypto trades 24/7, technical interruptions or low-liquidity windows can magnify volatility. 

Sharp gaps often lead to cascading liquidations, especially on exchanges with thin order books or limited circuit breakers. Mitigating this risk requires prudent position sizing and familiarity with each platform’s liquidation logic.  

4. Behavioral Traps

Emotional reactions, from overconfidence after wins to revenge trading after losses, frequently cause avoidable drawdowns. Leverage accelerates these mistakes.

Maintaining structured routines and pre-defined exit criteria helps neutralize psychological bias. Further strategies for maintaining discipline are discussed in our guide to managing losses and trading behavior.

5. Regulatory and Counterparty Risks

Oversight in crypto derivatives remains inconsistent across jurisdictions. While products listed on regulated venues such as CME follow CFTC standards, offshore platforms may lack equivalent protections or dispute-resolution systems.

Before trading on any exchange, evaluate its legal status and operational transparency through our reference on leverage trading legality in the USA and abroad.

Market Context and Volume Trends

Futures and perpetual contracts dominate crypto derivatives trading. According to CoinGlass data, perpetuals now represent over 75% of total derivatives volume, which shows their flexibility and accessibility.

Within the regulated derivatives space, CME hosts significant Bitcoin and Ether futures with substantial institutional participation. However, its open interest in crypto futures is often much smaller compared to the overall derivatives markets. Meanwhile, crypto exchanges such as Binance, Bybit, and Deribit dominate the perpetual futures markets, handling the vast majority of trading volume and open interest in perpetual contracts.

This structure creates a dual market: regulated, expiry-based futures preferred by institutions, and perpetual, funding-based instruments favored by retail and proprietary traders. Understanding how both coexist helps traders align their strategy with liquidity and regulation preferences.

Educational Summary

Futures and perpetual contracts are two sides of the same coin.

Both give traders access to leveraged exposure and hedging tools, but they differ in how that exposure is maintained, priced, and risk-managed. 

Futures contracts create structure and predictability. Their expiry dates and natural price convergence make them suitable for institutional hedging or portfolio balancing.

Perpetual futures, on the other hand, offer convenience and flexibility but require constant attention to funding rates, margin levels, and liquidation thresholds.

Traders who treat perpetuals as continuous positions must account for these costs, or they risk slow capital erosion even in otherwise profitable trades.

FAQs

Final Takeaway

The difference between futures contracts and perpetual futures contracts lies in how they align with spot prices and manage holding costs. Futures converge naturally at expiry. Perpetuals rely on funding to maintain parity.

Both serve essential purposes in crypto markets, but neither is forgiving. The advantage belongs to traders who model costs, understand margin triggers, and recognize that leverage is not a shortcut to profit; it is a multiplier of risk.