How Perpetual Futures Work
You post margin and open a position at a chosen leverage. With $1,000 of margin at 10x, you control a $10,000 perpetual position. From there it behaves like any leveraged trade: profit and loss scale with the full notional, and if price moves against you far enough to threaten your margin, you get liquidated.
What makes a perp perpetual is the absence of an expiry. A traditional future on BTC might settle on the last Friday of the quarter — on that date the contract closes and cash changes hands. A perp has no such date. To stop the contract price from drifting away from spot over months of open positions, exchanges use two coupled mechanisms: the funding rate and the mark price.
| Perpetual Futures | Dated Futures | |
|---|---|---|
| Expiry | ✅ Never expires | Settles on a fixed date |
| Stays pegged to spot via | Funding rate | Settlement at expiry |
| Funding payments | ⚠️ Every ~8h while open | ✅ None |
| Need to roll the contract? | ✅ No | ❌ Yes, each expiry |
| Liquidation reference | Mark price (index) | Mark price (index) |
| Share of crypto volume | Most leverage volume | Minority |
Funding Rate: The Peg
The funding rate is a small payment exchanged directly between long and short traders, typically every 8 hours. The exchange takes no cut — it's a transfer between the two sides.
When the perp trades above spot (more aggressive longs than shorts), funding is positive: longs pay shorts. That cost nudges longs to close and shorts to open, pulling the perp price back toward spot. When the perp trades below spot, funding flips negative and shorts pay longs. The rate is usually tiny — something like 0.01% per 8-hour window in calm markets, roughly 0.03% a day — but in a euphoric bull run it can spike to 0.1% per window or higher. Hold a $10,000 long through that and you're paying around $10 every 8 hours, $30 a day, just to keep the position open.
Funding is the entire reason a no-expiry contract can stay glued to spot. There's no settlement date forcing convergence, so the market pays itself to converge continuously.
Daily funding cost on a $10,000 long
Mark Price: What Liquidates You
Your liquidation isn't triggered by the last traded price — that figure is too easy to manipulate with a single large order on a thin book. Instead exchanges compute a mark price, an index of spot prices across major venues blended with the perp's own fair value. Your unrealized PnL and your liquidation level are both measured against mark price.
This matters in practice. During a violent wick, the last trade on one exchange might spike to a number that would liquidate you, but the mark price — anchored to the broader index — stays calmer and you survive. Mark price exists specifically to stop a momentary, isolated print from unfairly closing your position.
Worked Example
ETH spot is $3,000. You're bullish and open a perpetual long: $1,500 margin at 5x for a $7,500 position, about 2.5 ETH of exposure.
ETH climbs to $3,300 over two days (+10%). Your position is worth $8,250 — a $750 gain, a 50% return on margin. But funding was positive that whole run because everyone was long. Say it averaged 0.05% per 8-hour window: that's 0.15% a day on $7,500 notional, roughly $11.25 daily, about $22.50 across two days. Your true profit is closer to $727.50, not $750.
Now flip it. ETH drops to $2,700 (−10%) instead. You're down $750, half your margin. Mark price, not the local last trade, decides whether a deeper wick liquidates you — at 5x, a roughly 20% adverse move on mark price ends the position.
Knowing your exact liquidation level before you enter is non-negotiable; run it through the liquidation calculator. Funding quietly shaves the headline gain — the gross number on the exchange is not what hits your account.
Common Mistakes
- •Treating funding as a rounding error. Over a multi-week hold in a crowded long market, funding can quietly cost more than a 5% price move — and it's invisible on most position screens until you reconcile it afterward.
- •Watching last price instead of mark price for liquidation. Traders panic at a spike that would never have liquidated them on mark, or get caught off guard because they were tracking the wrong number.
- •Confusing perps with dated futures and expecting a settlement that never comes. A perp will sit open — and keep charging or paying funding — until you close it yourself.
How This Shows Up in Your Trading Journal
Funding is the silent line item that turns a winning perp trade into a flat one, and almost no exchange dashboard surfaces it cleanly per trade. Tradermake.money imports your perpetual futures from all 10 connected exchanges and reports true net PnL after fees and funding — so the number you see is what actually hit your account, not the gross figure that ignores days of funding drag.
It logs your leverage and liquidation events too, so you can tell whether a position survived on merit or on a lucky mark price. If you trade perps and don't track funding separately, you don't actually know your edge.