How Perpetual Contracts Work: A Complete Guide to Mechanics and Features

If you’re new to the world of crypto derivatives, you’ve probably heard of perpetual contracts. But what exactly are they, and why are they so popular among traders? Perpetual contracts are a unique instrument that allows opening both long and short positions without the need to set an expiration date. In this article, we’ll explore how these contracts actually work and why they differ from traditional futures.

What Are Perpetual Contracts and How Do They Differ from Futures

Imagine two types of trading instruments: one you can hold indefinitely, and another with a fixed expiration date. That’s the main difference.

Perpetual contracts have no expiration date. Traders can hold a position for as long as needed without the risk of automatic closure. All calculations are made in a stablecoin—usually USDC. For example, if you buy 1 BTC contract and the Bitcoin price increases by $100, your profit will be exactly 100 USDC. This means that all the logic of calculations in perpetual contracts is tied to USDC, not to changes in the price of the underlying crypto asset.

Futures contracts work differently. They have a clearly set settlement date—for example, the third Friday of the month. On that day, the position is automatically closed, and the trader either gains or loses money depending on the price movement. Futures are also settled in USDC, but their operation is designed to create a specific period for speculation or hedging.

An important point: perpetual contracts support only one-sided positions. This means you can hold either a long or a short on a single contract, but not both at the same time.

Mechanics of Profit and Loss Calculation in USDC

Why is the USDC calculation system so important? Because it removes confusion caused by fluctuations in the underlying asset’s price.

Suppose you’re trading BTC-PERP (perpetual Bitcoin contract). You open a position of 1 BTC. The Bitcoin price increases by $100 in an hour. Your profit won’t depend on the current Bitcoin price or its volatility. Your profit is simply $100 in USDC. Profit and loss are always calculated in the same currency, making calculations predictable and straightforward.

This creates a cohesive ecosystem where all assets in your portfolio operate within a single reference system. There’s no need to convert between different currencies or worry about exchange rate fluctuations.

Comparison of Parameters: Perpetual vs Futures Contracts

Understanding the differences is easier with a clear comparison of key features:

Perpetual USDC Contracts:

• Expiration date: none
• Quotation: in USDC
• Contract size (example for BTC): 1 BTC
• Minimum order size: 0.001 BTC
• Minimum price step: $0.5
• Funding interval: every 8 hours (00:00, 08:00, 16:00 UTC)
• Settlement interval: every 8 hours (00:00, 08:00, 16:00 UTC)
• Taker fee: 0.055%
• Maker fee: 0.02%

Futures USDC Contracts (example for BTC and ETH):

For BTC:

• Ticker: BTC-24MAR23 (example; format indicates settlement date)
• Underlying asset: Bitcoin
• Minimum order size: 0.001 BTC
• Max leverage: up to 50x
• Trading hours: 24/7
• Settlement time: 08:00 UTC on settlement day
• Settlement price: average index price 30 minutes before settlement
• Settlement fee: not charged
• Available durations: weekly, biweekly, triweekly, monthly, bi-monthly, quarterly, and bi-annual

For ETH:

• Ticker: ETH-31MAR23 (example)
• Minimum order size: 0.01 ETH
• Minimum price step: $0.05
• Other parameters match BTC contracts

Key point: futures contracts do not charge funding or settlement fees, which distinguishes them from traditional perpetual contracts.

Margin Systems: Cross Margin and Portfolio Margin

Now let’s look at two modes that determine how your position is protected from liquidation.

Cross Margin: Standard Protection Mode

This is the default mode when trading perpetual contracts. Its logic is simple: your entire available USDC balance acts as a “safety cushion” for your positions. If the market moves against you, the system uses all your free funds to prevent liquidation.

Liquidation occurs only when the maintenance margin ratio reaches 100%. This means you’ve lost all the margin needed to support your position.

In cross margin mode, you can set your desired leverage directly in the order placement window. By default, the system sets leverage at 10x, but experienced traders often lower it for greater safety.

Portfolio Margin: For Professionals

Portfolio margin is a more advanced approach. Instead of calculating margin for each position separately, the system analyzes your entire portfolio—both perpetual contracts and options.

The main advantage: if your positions are hedged (mutually offsetting), the system requires less margin. This is especially beneficial for traders using complex multi-layered strategies.

Portfolio margin also offers increased leverage for hedged portfolios, allowing more efficient capital use.

Requirements to activate portfolio margin:

• Minimum net capital: 1000 USDC
• No open derivative positions
• No active or conditional orders

If your balance drops below 1000 USDC, the system automatically switches your account back to cross margin mode (provided there are no open positions or active orders).

Choosing the Optimal Margin Mode for Your Strategy

Which mode should you choose? It depends on your trading style.

Choose cross margin if:

• You’re new to derivatives trading
• You prefer simplicity and clarity
• You trade one or two positions
• You want maximum protection with minimal risk

Switch to portfolio margin if:

• You have experience with complex strategies
• You use hedging (buying and selling simultaneously)
• You want to optimize margin usage
• You have sufficient capital (from 1000 USDC)

Perpetual contracts offer flexibility in choosing the margin mode, allowing you to adapt the instrument to your specific needs. Switching modes can be done with a single click directly above the order form.

Futures Contract Rotation Rules

Futures contracts operate on a rotation system. After the weekly contract expires, biweekly contracts automatically “upgrade” to become new weekly contracts. Triweekly contracts become new biweekly contracts. Simultaneously, a brand-new triweekly contract is generated.

This creates a continuous pipeline of contracts with different durations, ensuring liquidity and choice for traders regardless of the current period.

A special rule applies when expiration dates coincide. If a monthly contract is set to expire on the same day as a triweekly, the monthly contract is “reclassified” into a triweekly contract. A bi-monthly contract becomes a new monthly contract, and the system generates a new bi-monthly contract. This maintains a constant spectrum of available durations.

Key Takeaways About Perpetual Contracts

Perpetual contracts are a powerful tool for traders seeking flexibility and no time constraints. Unlike futures, they allow holding a position indefinitely while providing predictable profit calculations in USDC. The choice between cross margin and portfolio margin gives you tools to tailor the instrument to your trading strategy. Understanding how perpetual contracts work is the first step toward professional crypto derivatives trading.