Beginner guide · Non-custodial

What Are Perpetual Contracts? A Plain-English Guide

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If you've searched for how to trade crypto and kept seeing the word "perpetual" — you're not alone. Perpetual contracts are the most popular way to trade crypto derivatives, but most explanations are either too technical or too vague.

Here's what they actually are, in plain English.

A Perpetual Contract Is a Bet on Price Direction

You don't own the underlying asset. You're making a directional bet: will the price go up, or down?

If you think Bitcoin will rise, you go long. If you think it will fall, you go short. The profit or loss is the difference between your entry price and the current price, multiplied by your position size.

Unlike a traditional futures contract, a perpetual has no expiry date. You can hold it for minutes or months.

How Does It Stay Pegged to the Spot Price?

Traditional futures converge to the spot price as expiry approaches. Perpetuals don't expire, so they need another mechanism: funding rates.

When the perpetual price is above the spot price, longs pay shorts. When it's below, shorts pay longs. This incentive keeps the perpetual price close to the real asset price.

For most traders, funding is a small cost — usually a few basis points every 8 hours. It's worth knowing about, but it shouldn't drive your strategy.

Why Do Traders Prefer Perpetuals?

Three reasons:

1. No expiry. You don't need to roll over positions or worry about settlement dates.
2. Both directions. You can profit from downside moves by shorting, which is harder with spot.
3. Capital efficiency. With leverage, you can control a larger position with less capital.

The downside is the same leverage that amplifies gains also amplifies losses. This is why risk management matters more with perpetuals than with spot.

What Is Liquidation?

When you trade with leverage, your position has a liquidation price — the price at which the exchange automatically closes your position to prevent further losses.

If you buy 1 ETH at $3,000 with 10x leverage ($300 margin), your liquidation price might be around $2,750. If ETH drops to $2,750, your position is closed and you lose your $300 margin.

This is why setting a stop-loss before you enter a trade is critical. It lets you exit at a price you choose, rather than at the exchange's liquidation price.

How to Get Started

The simplest way to trade perpetuals:

1. Learn on a simulator first. Some platforms let you paper-trade before risking real money.
2. Start with 1x–3x leverage. High leverage is for experienced traders with strict risk management.
3. Always set a stop-loss. Know your maximum loss before you enter any trade.
4. Pick a clean interface. If the trading terminal confuses you, you'll make mistakes. Choose an interface you can read quickly.

Platforms like Trending let you trade directly on the chart — no terminal, no order book, just the price action and your entry/exit points.

The Bottom Line

Perpetual contracts are powerful tools. They let you trade both directions, without expiry, with capital efficiency. But they also carry real risk — especially when used with leverage.

Start small. Use low leverage. Always set a stop-loss. And trade on an interface that doesn't make you work harder than the market already does.

Try it on the chart →