01 · Perpetual Swaps
The perpetual swap (Perpetual Contract / Perp) is the most popular derivative in the crypto market: trading volume routinely exceeds spot, markets are open 24/7, and leverage can reach 100x or more. It has no delivery date and no expiry — one contract can be held all the way until "liquidation" — which is exactly the warning retail traders hear most often in the perpetual market.
⚠️ Risk Warning: perpetual swaps are the No. 1 disaster zone for retail blow-ups. Crypto trades 365 days a year, 24 hours a day; late-night wicks (instant, violent price moves) and extreme conditions can trigger forced liquidation of a high-leverage position within seconds. For every "100x miracle" there are countless accounts whose positions went to zero. Do not open a single leveraged position before you understand margin, the liquidation price, and the funding rate. All rules in this article follow the latest terms of major exchanges such as Binance and OKX; formulas are general teaching versions.
What Is a Perpetual Swap
One-sentence definition: a perpetual swap = a futures contract with no delivery date.
Regular futures (see the futures chapter) have an expiry date and must be delivered at expiry (physically or in cash), which is why positions must be "rolled". A perpetual swap has no expiry and can theoretically be held indefinitely, sparing you the rolling trouble.
But it must solve one key problem: with no delivery price as an anchor, why should the contract price track the spot price?
Traditional futures rely on "convergence at expiry" to keep the price near spot; perpetual swaps rely on two mechanisms:
- Funding rate — longs and shorts periodically pay each other, "pulling" the price back toward spot when it drifts (see 02-Funding Rates);
- Mark price — settlement and liquidation prices are computed from benchmarks such as the spot index price, preventing the contract price from being manipulated (see below).
In short: a perpetual swap ≈ a futures-style margin-and-leverage system + a funding-rate anchoring mechanism in place of delivery.
Perpetuals vs Dated Futures
| Dimension | Perpetual swap | Dated futures (current/next quarter) |
|---|---|---|
| Expiry | None; can be held indefinitely | Fixed expiry (e.g. quarter-end) |
| Delivery | No delivery; rolls on forever | Physical/cash delivery at expiry; positions must be rolled |
| Price anchoring | Funding rate + mark price | Natural convergence to spot at expiry |
| Main liquidity | Always the main market, best depth | Liquidity dries up as delivery approaches |
| Suited for | The vast majority of traders; intraday/swing | Those needing to lock forward prices; institutional hedgers |
| Funding rate | Yes, settled periodically | None (the spread shows up directly in the contract price) |
Conclusion: 99% of retail crypto contract trading happens on perpetual swaps. Dated futures are used mainly by institutions for hedging or "calendar spreads".
USDT-Margined vs Coin-Margined
Perpetual swaps fall into two families by margin/settlement currency, instantly recognizable on any trading interface:
| Dimension | USDT-margined (USDT-M, linear) | Coin-margined (COIN-M, inverse) |
|---|---|---|
| Contract size | Denominated in coin (e.g. 1 contract = 0.001 BTC) | Denominated in USD (e.g. 1 contract = 100 USD) |
| Margin/P&L | Settled in USDT (or USDC) | Settled in the underlying coin (BTC/ETH etc.) |
| How you profit | Earn USDT; intuitive | Earn coin: when the coin rises, "coin-denominated gains × the coin's own rise" compounds |
| Suited for | Almost everyone; the default for beginners | Veterans who are long-term bullish and want to "earn ever more coins" |
| Liquidation math | Linear; simple formulas | Non-linear; complex calculations |
What Makes Coin-Margined Special
Coin-margined contracts post BTC as margin. If you open a BTCUSD perpetual with "1 contract = 100 USD" and BTC rises from 50,000 to 60,000:
- Notional value of the contract: 100 USD (unchanged);
- Margin occupied: 100 ÷ 50,000 = 0.002 BTC (at opening);
- BTC needed to close: 100 ÷ 60,000 ≈ 0.00167 BTC — you get fewer BTC back.
An even more direct example: when you are long a coin-margined contract and BTC rises 20%, your return is "the BTC-denominated gain" × "BTC itself also rose 20%" — double amplification; when BTC crashes, losses are amplified the same way. That is where the name "inverse contract" comes from.
Beginner advice: always start with USDT-margined contracts. Coin-margined looks flexible, but its P&L math, liquidation price, and funding fees (paid in coin) are an order of magnitude more complex than USDT-margined.
Contract Specifications
Whichever exchange you use, the fields on the order screen before opening a perpetual are roughly the same (values per the exchange's latest rules):
| Element | Meaning | Typical example (Binance/OKX) |
|---|---|---|
| Contract size | How much underlying one contract represents | BTCUSDT: 1 contract = 0.001 BTC; BTCUSD (coin-margined): 1 contract = 100 USD |
| Minimum order | Minimum order quantity and minimum notional value | Minimum 0.001 BTC; minimum notional about 5 USDT |
| Price precision | Minimum tick size | BTC: 0.1 USDT; small altcoins may be 0.00001 USDT |
| Quantity precision | Order quantity step | BTC step 0.001; varies hugely across coins |
| Leverage range | Maximum leverage allowed | BTC/ETH: up to 100x–125x; small coins: 20x–75x |
| Fees | Taker/maker rates | Regular user Taker 0.05%, Maker 0.02% |
| Settlement time | Funding fee settlement points | Every 8 hours (UTC 0/8/16) |
Leverage Tiers (Tiered Margin)
Exchanges will not let you "run 100x leverage on a full-size position"; they use tiered leverage brackets: the larger the position, the lower the allowed leverage and the higher the maintenance margin rate. Example (always defer to the exchange's page):
| Tier | Position notional (USD) | Max leverage | Maintenance margin rate |
|---|---|---|---|
| 1 | 0 – 50,000 | 125x | 0.40% |
| 2 | 50,000 – 250,000 | 100x | 0.50% |
| 3 | 250,000 – 1,000,000 | 50x | 1.00% |
| 4 | 1,000,000+ | 20x | 2.50% |
The point: the larger your position, the more sensitive the system is to every dollar of movement, and the higher the required margin ratio. "100x leverage" applies only to tiny positions — do not be fooled by marketing numbers.
Margin Modes: Cross vs Isolated
You choose at opening and can switch anytime afterwards (switching triggers a recalculation of the liquidation price):
| Dimension | Isolated | Cross |
|---|---|---|
| Margin source | Only the margin allocated to that position | The account's entire available balance |
| Liquidation consequence | Only that position's margin is lost; other funds unaffected | Potentially the entire account equity |
| Liquidation price | Fixed; easy to compute (formula below) | Moves with account balance; more funds = farther away |
| Suited for | Strict per-trade risk control; multiple independent positions | Those staking the whole account as one bet |
Isolated is a "private gambling table" — lose the chips on that table and you simply leave; cross is "all-in on yourself" — lose, and you are wiped out. Beginners must use isolated margin, quarantining risk within a single position.
Liquidation Price Calculation
Definition of forced liquidation: when margin can no longer maintain the position, the exchange closes it by force. Liquidation is not triggered "only when the principal is fully lost" — it triggers as soon as the margin ratio falls below the maintenance margin rate.
Core Concepts
| Term | Meaning |
|---|---|
| Initial margin rate (IMR) | Margin required to open = 1 ÷ leverage |
| Maintenance margin rate (MMR) | Minimum margin ratio that must be maintained while holding (set by the tier brackets) |
| Bankruptcy price | The price at which margin is exactly exhausted |
| Liquidation price | The price that triggers liquidation (before the bankruptcy price) |
USDT-Margined Isolated Long
Formula (ignoring fees and funding):
Liquidation price = Entry price × (1 − 1/Leverage) ÷ (1 − Maintenance margin rate)Worked example: BTC = 60,000 USDT, 20x isolated long, maintenance margin rate 0.5%
Liquidation price = 60,000 × (1 − 1/20) ÷ (1 − 0.005)
= 60,000 × 0.95 ÷ 0.995
≈ 57,286 USDT- Distance: 60,000 − 57,286 = 2,714 USDT, i.e. a price drop of about 4.5% liquidates the position;
- Sanity check: 20x leverage means a 5% adverse move wipes out the margin; after subtracting maintenance margin and fees, liquidation actually hits at about 4.5%.
USDT-Margined Isolated Short
Liquidation price = Entry price × (1 + 1/Leverage) ÷ (1 + Maintenance margin rate)Worked example: ETH = 3,000 USDT, 10x isolated short, maintenance margin rate 0.5%
Liquidation price = 3,000 × (1 + 1/10) ÷ (1 + 0.005)
= 3,000 × 1.1 ÷ 1.005
≈ 3,284 USDT- Distance: 3,284 − 3,000 = 284 USDT, i.e. a price rise of about 9.5% liquidates the position;
- Shorting caveat: upside is theoretically unlimited — a doubling of price is a 100% loss. Short liquidations are the crypto market's classic "one big green candle wipes out all the shorts".
Coin-Margined (Inverse) Liquidation Price
The coin-margined formula is non-linear; skip the derivation and remember the conclusion:
USDT-margined: an adverse move of about 1/Leverage brings you close to liquidation
Coin-margined: an adverse move of about 1/(Leverage − 1) brings you close to liquidation (P&L is in coin, and the coin price itself moves)Conclusion: trust the "estimated liquidation price" displayed in real time on the exchange interface. All hand formulas are approximations — actual liquidation is also affected by fees, funding, the mark price, and the maintenance margin tiers.
Liquidation Price in Cross Mode
In cross mode, every unused dollar in the account counts as margin:
Liquidation price ≈ the price at which "total account equity = maintenance margin requirement"- More USDT in the account → liquidation price farther away;
- Other profitable positions in the account → push the liquidation price farther;
- Other losing positions in the account → pull it closer, and one position's losses can detonate the whole account.
Why Liquidation Is Not "Losing Exactly Everything"
| Price zone | State |
|---|---|
| Entry price ~ bankruptcy price | Normal holding; floating P&L |
| Between bankruptcy price and liquidation price | Margin < maintenance margin rate; liquidation triggered (before total loss) |
| Filled below the bankruptcy price | The position itself "loses beyond zero"; the gap is covered by the insurance fund (see below) |
This is the logic behind "you can still owe money after liquidation": the liquidation order is a market order. If an instant wick blows through the bankruptcy price and fills below it, the position has already "lost beyond zero".
Insurance Fund and Auto-Deleveraging (ADL)
When a liquidation order fills better than the bankruptcy price, the surplus flows into the insurance fund; when it fills worse, the fund covers the gap. If the insurance fund is exhausted, auto-deleveraging (ADL) kicks in:
| Mechanism | Description |
|---|---|
| Bankruptcy price | The price at which margin hits zero |
| Insurance fund | A pool funded by "the surplus from liquidations", used first to absorb liquidation losses |
| ADL trigger | The insurance fund cannot cover the losses (extreme markets, cascading liquidations) |
| What ADL does | The system ranks counterparties by "profit ratio × leverage" and force-closes high-leverage, high-profit opposing positions |
| ADL price | Fills at a price better than the bankruptcy price (but likely worse than your expected exit price) |
| How to avoid ADL | Lower leverage, take profits promptly, watch the exchange's ADL ranking/indicator |
⚠️ Risk Warning: ADL means "you can be force-closed even while in profit". In extreme markets, profitable high-leverage positions can be singled out and forcibly closed (to offset the losses of blown-up positions). This is a tail risk unique to perpetual swaps: your position is not entirely yours to decide. Low leverage plus prompt profit-taking is the only defense.
P&L Calculation
USDT-Margined Long/Short P&L
Long: P&L = Position size × (Exit price − Entry price)
Short: P&L = Position size × (Entry price − Exit price)Worked example: 1 BTC perpetual long, entry 60,000, exit 63,000, 20x leverage (margin 3,000 USDT)
| Item | Amount (USDT) |
|---|---|
| Price P&L | 1 × (63,000 − 60,000) = +3,000 |
| Entry fee (Taker 0.05%) | −60,000 × 0.05% = −30 |
| Exit fee (Taker 0.05%) | −63,000 × 0.05% = −31.5 |
| Funding (assume 3 settlements at 0.01% each) | −61,500 × 0.03% ≈ −18.5 |
| Net profit | ≈ +2,920 |
- Return on margin: 2,920 ÷ 3,000 ≈ 97% (spot only rose 5% over the same period — this is leverage's amplification);
- The reverse holds too: if you exit at 57,000, price P&L is −3,000; add fees and funding, and the 3,000 margin is wiped out — and you may still owe more.
Coin-Margined P&L
Long P&L (BTC) = Contracts × Contract size (USD) × (1/Entry price − 1/Exit price)Example: 100 contracts of 100 USD BTCUSD perpetual, entry 60,000, exit 66,000
P&L = 100 × 100 × (1/60,000 − 1/66,000)
= 10,000 × 0.000001515
≈ 0.01515 BTC- 0.01515 BTC is worth about 1,000 USD at 66,000; in coin-margined terms, the number of coins you earned also grew with the coin's rise — the double amplification described earlier.
Fees and Funding: The Profit Killers
| Cost | Paid to | Typical rate (regular user) | Notes |
|---|---|---|---|
| Taker fee | The exchange | 0.05% (lower for VIP) | Charged on both entry and exit |
| Maker fee | The exchange | 0.02% | Charged only when a resting order is filled |
| Funding fee | The counterparty (longs pay shorts / shorts pay longs) | Commonly ±0.01%–0.03% | Settled every 8 hours |
High-frequency scalpers can burn their entire principal on fees alone in a year; long-term holders must constantly watch the funding direction — when it turns against you, the position itself bleeds continuously.
Mark Price Mechanics
Liquidation, funding, and floating P&L are all computed from the mark price, not the latest traded price on the order book:
| Dimension | Last price | Mark price |
|---|---|---|
| Source | The last trade on the order book | Composite of the spot index price + funding rate basis, etc. |
| Trait | Easily spiked by large orders | Smooth; hard for a single exchange to manipulate |
| Liquidation basis | No | Yes (liquidation watches the mark price) |
| Funding basis | Used in some calculations | Yes |
- On Binance and other exchanges, mark price = spot index (weighted across multiple spot venues) + a moving average of the funding rate basis;
- Purpose: to stop players with deep pockets from printing a fake price in the contract book, liquidating you, and letting the price return — the classic "wick-hunt liquidation";
- Caveat: the mark price itself cannot be manipulated, but in extreme markets the spot index swings violently too, and the mark price will still race toward your liquidation price.
Practical tip: order screens usually show both "last price" and "mark price" — when judging the distance to your liquidation price, check it against the mark price.
Beginner Checklist
- [ ] Understood margin, leverage, and liquidation from the futures chapter;
- [ ] Start with USDT-margined, isolated margin, low leverage (5x or below);
- [ ] Computed the liquidation price before opening, and set a stop-loss (placed before the liquidation price);
- [ ] Noted the funding rate's payment direction and the next settlement time;
- [ ] Only use money whose total loss would not affect your life.
⚠️ Risk Warning
A perpetual swap = no delivery date × high leverage × 24/7 trading × funding × ADL — one of the most retail-hostile products in all of finance. It can blow up fast enough to go "from floating profit to zero within one minute". Do not fight volatility with leverage; leverage only amplifies the damage volatility does to you.