Perpetual contracts: leverage, liquidation, and funding
How perpetuals work: two-way positions, leverage, maintenance margin, and how a liquidation price is set.
1. What is a perpetual contract?
A dated future expires and must be settled. A perpetual has no expiry. You can keep the position while the margin requirement is met.
You can go long if you expect a rise, or short if you expect a fall. A short can profit when the price drops, and it can lose when the price rises.
2. Why funding exists
Funding is what keeps a perpetual near the spot index without an expiry date.
If the contract trades above the index, the funding rate is often positive and longs pay shorts. If it trades below, shorts pay longs. That payment pushes the contract price back toward the index. The exact formula is the one published for the contract.
3. Leverage and liquidation
Leverage cuts both ways. At 10x, 1,000 USDT of margin controls about 10,000 USDT of position. A 10% move in your favor doubles the margin; a 10% move against you can wipe that margin out.
If equity falls through the maintenance margin, the position can be liquidated. New users should keep leverage low, often in a 2x–5x range, and set a stop. Those are risk limits, not a promise that a stop will fill at the chosen price.
Takeaways
- 1Perpetuals can be long or short. Funding is the mechanism that pulls the contract toward the spot index.
- 2Leverage increases both gains and losses, and it leaves less room for a price swing.
- 3Set a stop when you open. Do not add to a losing position just to avoid closing it.
Check it against live markets
Use live markets to review what you read. Fills and fees follow the order you actually place.