What Are Binance Perpetual Futures, Exactly?

"Perpetual futures" might sound intimidating, but the concept is actually quite straightforward. This article explains it in the simplest terms possible.

First, Understand What a "Future" Is

Futures trading is essentially an agreement: you and a counterparty agree to exchange an asset at a certain price at a future date. Traditional futures contracts have an expiration date -- for example, delivery in three months.

Visit the Binance official site and go to the futures trading page to see two types of contracts. You can also download the APK to check on your phone.

So What Does "Perpetual" Mean?

The defining feature of perpetual futures is that they have no expiration date. Once you open a position, you can theoretically hold it indefinitely without needing to close or settle by any particular date.

This differs from traditional futures. With traditional futures, you must close your position or take physical delivery by the expiration date. Perpetual futures have no such constraint.

Funding Rate: Keeping Perpetual Prices Anchored to Spot

Since there's no expiration and settlement, how do perpetual futures stay aligned with spot prices? That's where the "funding rate" mechanism comes in.

Every 8 hours, the system settles a funding rate between longs and shorts:

• When the futures price is above the spot price: Longs pay shorts (encouraging shorting and discouraging longing, pulling the price down)
• When the futures price is below the spot price: Shorts pay longs (encouraging longing and discouraging shorting, pushing the price up)

The funding rate is usually very small, such as 0.01%, but if you hold a large position or hold for extended periods, the cumulative cost can be significant.

Key Features of Perpetual Futures

1. No expiration date: Can be held indefinitely
2. Leverage support: From 1x to 125x
3. Two-way trading: Can go long or short
4. Funding rate: Settled every 8 hours as a holding cost
5. USDT or coin-margined settlement: Binance offers both USDT-margined and coin-margined perpetual contracts

USDT-Margined vs. Coin-Margined

USDT-margined perpetual contracts: Use USDT as collateral and settlement currency. Profit and loss are calculated in USDT, which is more intuitive. Recommended for beginners.

Coin-margined perpetual contracts: Use the corresponding cryptocurrency (e.g., BTC) as collateral. Profit and loss are calculated in the coin. Better suited for long-term holders.

Who Are Perpetual Futures For?

Perpetual futures are mainly for:

• Those who want to do short-term or day trading
• Those who want to amplify returns using leverage
• Those who want to hedge risk by shorting

Not suitable for:

• Complete beginners (learn spot trading first)
• Those who can't handle liquidation risk
• Long-term investors who don't have time to watch the market

Once you understand how perpetual futures work, you'll be better equipped to decide whether and how to use them.