Futures Trading Explained: Perpetuals, Leverage and Funding Rates
Perpetual futures, leverage, funding rates and liquidation, what every crypto trader should understand before going long or short.
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Claim Free Welcome Bonus →Perpetual futures, briefly
A perpetual future is a derivative that tracks the spot price of an asset without an expiry date. A funding rate, paid periodically between longs and shorts, keeps the contract price tethered to spot.
Leverage and liquidation
Leverage multiplies both gains and losses. At 10x, a 10% move against you wipes out the position. Modern venues use cross or isolated margin and a maintenance margin requirement; falling below it triggers liquidation.
Funding rates
When the perpetual trades above spot, longs pay shorts; when it trades below, shorts pay longs. Persistent funding skew is itself a market signal, and a real cost to holding positions.
Risk management non-negotiables
Use isolated margin until you are experienced. Size positions so a stop loss costs you a small, defined percentage of account. Never average down into a losing leveraged position.
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Frequently asked questions
What leverage should I use?
Most professional traders use single-digit leverage. Higher leverage is mostly a way to lose money faster.
What is a liquidation?
Forced closure of your position when margin drops below the maintenance requirement, often at significant loss.
How does funding work?
Funding is a small periodic payment between longs and shorts that keeps perpetual prices near spot.
Is futures trading legal?
It depends on your jurisdiction. Check local rules before opening derivatives positions.
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