What are perpetual futures?

Traditional futures have an expiration date. When the contract expires, it settles at the spot price. Perpetual futures remove the expiry — the contract stays open indefinitely.

Without expiration, there's no natural mechanism forcing the contract price toward spot. Instead, perps use a funding rate — a periodic payment between longs and shorts that incentivizes the contract price to track the underlying asset.

You can go long (bet on price going up) or short (bet on price going down) with leverage, typically ranging from 2x to 50x depending on the exchange and asset.

The funding rate is the core innovation of perpetual futures. Here's how it works:

Funding is typically paid every 1 to 8 hours, depending on the exchange. Hyperliquid uses an hourly rate, while some exchanges like dYdX use an 8-hour cycle. The rate is calculated as a percentage of your position size.

Perpetual futures were pioneered by centralized exchanges like BitMEX and Binance. Now, decentralized exchanges (DEXs) offer the same contracts on-chain with key differences:

The high variance in funding rates across perp DEXs is exactly what creates arbitrage opportunities. When Hyperliquid charges 0.01%/hr and Aster charges 0.05%/hr for the same asset, that spread is money on the table.

Most traders treat funding as a cost — something that silently drains their margin while they focus on price action. But funding rates contain valuable information:

• •Market sentiment: Consistently positive rates mean the market is overwhelmingly long. Negative rates signal heavy shorting.
• •Yield source: Funding rate arbitrage turns this cost into income by capturing the spread between exchanges — without taking any directional bet.
• •Risk signal: Extreme funding rates (above 0.1%/hr) often precede violent reversals. Monitoring rates helps you gauge crowding.