What are Perps

Concepts

Perpetuals are a type of derivative contract that allowtraders to speculate on the price movements of an underlying asset without having to own it or delivery it. They have no expiry date and are constantly adjusted by the funding rate.

Funding rate: A mechanism that keeps the perpetual futures price aligned with the spot price. It incentivizes traders to take positions that help bring the two prices together.

When the futures price is higher than the spot price, the funding rate is positive, meaning traders holding long positions pay traders holding short positions. This encourages traders to short, pushing the futures price down toward the spot.

When the futures price is lower than the spot price, the funding rate is negative, meaning short traders pay long traders. This incentivizes traders to go long, which raises the futures price toward the spot. i.e If the spot price is $145 and the futures price is $143, the funding rate would likely be negative, encouraging traders to go long and narrowing the price gap.

• When futures < spot → negative funding → encourages buying futures → pushes futures ↑ short positions pay long positions

• When futures > spot → positive funding → encourages selling futures → pushes futures ↓ long positions pay short position