> For the complete documentation index, see [llms.txt](https://docs.afx.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.afx.xyz/glossary/perpetual-contract.md).

# What Is a Perpetual Contract? Definition & How It Works (2026)

**A perpetual contract (or perpetual future) is a derivatives contract that lets you trade the price of an asset with leverage and no expiry date. Unlike traditional futures, it never settles on a fixed date — instead, a funding rate mechanism keeps its price anchored to the underlying asset's spot or reference price, allowing positions to be held indefinitely.**

### Key Takeaways

* A perpetual contract lets you trade an asset's price with leverage and **no expiration date**, so positions can be held indefinitely.
* A **funding rate** — a periodic payment between longs and shorts — keeps the contract price anchored to the underlying's reference price.
* Your PnL and liquidation are calculated on **mark price** (a fair-value oracle reference), not the last traded price.
* Perpetuals let you go **long or short** and use leverage, unlike unleveraged spot trading.
* On [AFX](https://app.afx.xyz/trade/XAUUSDC), every market is a perpetual contract margined in **USDC** and settled **on-chain** on Arbitrum.

### What Is a Perpetual Contract?

A perpetual contract is the most widely traded instrument in crypto derivatives. It gives you exposure to an asset's price movement without requiring you to own the asset itself. You post margin — on AFX, this is always USDC — and open a position that gains or loses value as the underlying price moves.

The defining feature is in the name: it is *perpetual*. Traditional futures contracts expire on a set date (monthly, quarterly), forcing traders to close or roll their positions. A perpetual contract has no expiry. You can hold a position for minutes or months, closing it whenever you choose.

To keep a contract with no expiry anchored to reality, perpetuals rely on the [funding rate](/basics/what-is-funding-rate.md) — a periodic payment between long and short traders that pulls the contract price back toward the asset's [oracle price](/glossary/oracle-price.md) whenever the two drift apart.

### How Perpetual Contracts Work

Three mechanisms make a perpetual contract function:

**1. Leverage and margin.** You control a position larger than your deposited capital. A 10x leveraged position requires one-tenth of the notional value as margin. This amplifies both gains and losses — see [Leverage](https://docs.afx.xyz/trading-rules/leverage) for a full breakdown.

**2. Mark price for fair valuation.** Your unrealized profit, loss, and liquidation level are calculated using [mark price](https://docs.afx.xyz/trading-rules/mark-price) — a fair-value price derived from an external oracle reference — not the last traded price in the order book. This protects you from being liquidated by a temporary wick or a manipulated order.

**3. Funding rate to anchor the price.** Because there is no expiry to force convergence with spot, the funding rate does that job continuously. When the perpetual trades above the reference price, longs pay shorts; when it trades below, shorts pay longs. This economic pressure keeps the contract price tethered to the underlying.

### Perpetual Contract Example

Here is how a perpetual contract works in practice, using a BTC-PERP position on AFX.

Suppose BTC is trading at $60,000 and you open a **long** position with $1,000 of USDC margin at 10x leverage. That gives you a notional position size of $10,000 — roughly 0.167 BTC of exposure — controlled with just $1,000 of capital.

* **If BTC rises 5%** to $63,000, your position gains $500 (a 50% return on your $1,000 margin, because of the 10x leverage).
* **If BTC falls 5%** to $57,000, your position loses $500 — and if it keeps falling toward your liquidation price, the position is closed to protect your remaining balance.

While the position is open, funding is settled periodically. If the funding rate for that interval is +0.01% (positive, meaning the perpetual is trading above reference), a long holder pays 0.01% of the $10,000 notional — about $1 — to the short side. If the rate is negative, the long *receives* the payment instead. There is no expiry to worry about: you hold the position until you choose to close it.

This is the core appeal of a perpetual contract — leveraged, two-directional exposure with no rollover — and also its core risk: leverage amplifies losses just as much as gains.

### Perpetual Contract vs Traditional Futures

| Feature           | Perpetual Contract                       | Traditional Futures              |
| ----------------- | ---------------------------------------- | -------------------------------- |
| Expiry date       | None                                     | Fixed (monthly/quarterly)        |
| Rollover required | No                                       | Yes, before each expiry          |
| Price anchoring   | Funding rate mechanism                   | Convergence at settlement        |
| Settlement        | Ongoing (mark-to-market)                 | On expiry date                   |
| Typical use       | Continuous directional exposure, hedging | Delivery, calendar-based hedging |

The absence of expiry is why perpetuals dominate crypto trading volume: traders can express a view and hold it without the operational friction of rolling contracts. On AFX, this extends beyond crypto to commodities and other assets — [crude oil (CL-PERP)](https://app.afx.xyz/trade/CLUSDC) and [gold (XAU-PERP)](https://app.afx.xyz/trade/XAUUSDC) perpetuals let you hold commodity exposure without the quarterly rollover that CME futures require.

### Perpetual Contracts on AFX

On AFX, every market is a perpetual contract, margined in USDC and settled on-chain. This includes:

| Category           | Pairs                                                                                                         |
| ------------------ | ------------------------------------------------------------------------------------------------------------- |
| Crypto             | [BTC-PERP](https://app.afx.xyz/trade/BTCUSDC), [ETH-PERP](https://app.afx.xyz/trade/ETHUSDC)                  |
| Commodities        | [XAU-PERP](https://app.afx.xyz/trade/XAUUSDC) (gold), [CL-PERP](https://app.afx.xyz/trade/CLUSDC) (crude oil) |
| Equities / Private | [SPCX-PERP](https://app.afx.xyz/trade/SPCXUSDC) (SpaceX)                                                      |

Every AFX perpetual shares the same mechanics: USDC margin, no expiry, oracle-anchored mark price, market/limit/stop order types, and a funding rate that keeps the contract tethered to its reference. Because AFX is a decentralized exchange, settlement happens on-chain — deposits and withdrawals are USDC transactions on Arbitrum, verifiable on the blockchain.

### FAQ

#### What does perpetual mean in a contract?

"Perpetual" means the contract has no expiration or settlement date. A traditional futures contract expires on a fixed date, after which it is settled and ceases to exist. A perpetual contract never expires — it continues indefinitely, and a funding rate mechanism (rather than an expiry-day settlement) keeps its price aligned with the underlying asset.

#### How long can you hold a perpetual contract?

Indefinitely — there is no time limit. Because a perpetual contract has no expiry date, you can keep a position open for minutes, days, or months, as long as you maintain enough margin to keep it above the maintenance margin level. The main ongoing cost of holding is the funding rate, which is exchanged periodically between longs and shorts.

#### How do you get out of a perpetual contract?

You exit simply by closing the position — placing an opposite order to the one you opened (sell to close a long, or buy to close a short). On AFX you can close manually at any time, or set a stop or take-profit order to close automatically at a target price. Because there is no expiry, closing is entirely at your discretion. A position can also be closed involuntarily through liquidation if your margin falls to the maintenance level.

#### Are perpetuals better than futures?

Neither is strictly "better" — they suit different needs. Perpetual contracts remove the operational friction of expiry and rollover, which is why they dominate crypto trading volume; you can hold a directional view continuously without rolling into a new contract every quarter. Traditional dated futures can be preferable for calendar-based hedging or where physical delivery matters. For continuous, leveraged exposure to crypto, commodities, or other assets, perpetuals are usually the more practical instrument — which is why every market on AFX is a perpetual.

#### What is the difference between a perpetual contract and spot trading?

In spot trading, you buy and own the actual asset — real Bitcoin, real shares. In perpetual contract trading, you never own the underlying; you hold a derivative that tracks its price. Perpetuals allow leverage and let you profit from both rising and falling prices (going long or short), while spot trading is typically unleveraged and only profits when the price rises. On AFX, all trading is via perpetual contracts margined in USDC.

#### Why do perpetual contracts have a funding rate?

Because they have no expiry date to force the contract price to converge with the spot price. Traditional futures naturally converge with spot at settlement. Perpetuals never settle, so the funding rate provides ongoing economic pressure: it pays traders to take the side of the trade that pushes the contract price back toward the reference price. Without funding, a perpetual could drift permanently away from the underlying asset's value.

#### Can I lose more than my margin on a perpetual contract?

On AFX, your maximum loss on a position is limited to the margin allocated to it. When your margin falls to the maintenance margin level (measured against [mark price](https://docs.afx.xyz/trading-rules/mark-price)), the position is liquidated to prevent your balance from going negative. This is why managing leverage and monitoring your [liquidation](/basics/what-is-liquidation.md) price is critical — higher leverage places your liquidation price closer to your entry.

***

### Keep Learning

* [What Is a Perpetual DEX?](/basics/what-is-a-perpetual-dex.md) — how perpetual contracts trade on a decentralized, on-chain exchange
* [What Is a Funding Rate?](/basics/what-is-funding-rate.md) — the mechanism that anchors a perpetual to its reference price

***

*This article is for informational and educational purposes only. It does not constitute financial or investment advice. Trading perpetual contracts involves significant risk, including the possibility of losing your entire deposited margin. Not Financial Advice (NFA). Always do your own research.*


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