what are perpetual futures

Perpetual futures, also known as perpetual swaps, are derivative contracts that allow traders to speculate on the future price of an asset without an expiration date. These contracts enable traders to control larger positions with less capital through leverage, but they also come with increased risk. Unlike traditional futures contracts, perpetual futures have no expiry and are constantly adjusted by a mechanism called the funding rate. Payments are periodically exchanged between holders of the two sides of the contracts, long and short, with the direction and magnitude of the settlement based on the difference between the contract price and that of the underlying asset, as well as, if applicable, the difference in leverage between the two sides. Perpetual futures were first proposed by economist Robert Shiller in 1992 to enable derivatives markets for illiquid assets. These contracts are particularly popular among traders in the cryptocurrencies market. Due to the less regulated nature of cryptocurrencies in certain jurisdictions, some exchanges offer perpetual futures trading with extremely high leverage, but trading in perpetual futures is outlawed or severely limited in many other countries. Perpetual futures are designed to trade close to the underlying asset price, do not expire or settle, and can be held indefinitely.