Unit 3 · Level 3 · Futures & perps
Perpetuals: crypto's invention
In 2016, crypto exchange BitMEX popularized a strange beast: a futures contract with NO expiry date. But expiry is what forces a future back to spot. Remove it and the price could drift anywhere. The fix is funding: every eight hours, whichever side is crowded pays the other, nudging the perp's price back to spot. No settlement day, just a tether made of payments.
Free to play. No ads, no token, no account needed to start.
What you get asked
What problem does the funding rate solve for perpetuals?
Dated futures converge at settlement; perps have no settlement, so funding is the invisible hand doing convergence continuously, forever.
Funding is strongly positive. Who pays whom, and what does it reveal?
The perp trades above spot when longs are crowded, so longs pay to hold. Real money changing hands every eight hours: the most honest sentiment gauge in crypto.
Match the contract or signal to its behavior
Same exposure, different plumbing. Read the plumbing and the crowd's position is visible in the pipes.
A perp never expires, so instead of convergence at settlement it uses ___ every eight hours to hug the spot price.
Small recurring payments between longs and shorts do the job that expiry day does for dated futures.
You covered funding as a sentiment signal in the Trading course. Extreme funding readings matter because…
When everyone leans one way and pays for the privilege, a small shove the other way forces liquidations that feed on themselves. Crowds pay; contrarians collect. 🐜
The rest of this unit
Obligations, basis, funding and hedges: the contracts professionals run on.