Perpetual Futures vs Traditional Futures: Key Differences Explained

Traditional futures have a fixed expiration date (e.g., quarterly). When they expire, positions settle to the index price. Perpetual futures ("perps") never expire—positions can be held indefinitely.

• Traditional futures: Fixed expiry (monthly, quarterly). Price converges to spot at settlement.
• Perpetual futures: No expiry. Price anchored via funding mechanism.

Without expiry, perps need another mechanism to track spot price. That's where funding comes in.

• Funding is a periodic payment between longs and shorts (typically every 8 hours).
• When perp price > spot: funding is positive, longs pay shorts.
• When perp price < spot: funding is negative, shorts pay longs.
• This incentivizes traders to push the price back toward spot.

Basis is the difference between futures price and spot. In traditional futures, basis reflects time value and carry costs. In perps, basis is usually small (kept in check by funding).

• Contango: Futures > Spot. Common in bull markets. Positive carry for sellers.
• Backwardation: Futures < Spot. Can occur in downtrends or high demand for hedging.

• Perps: For short-term trading, active management, or when you don't want rollover complexity.
• Quarterly futures: For longer-term positions, cash-and-carry arbitrage, or avoiding funding costs.
• Both: Sophisticated traders may use both—perps for active trading, quarterlies for hedges or carry trades.

Different instruments suit different strategies. Understand the mechanics before committing capital.

• Funding explained: Perpetual Funding Rate Explained
• Basis explained: Futures Basis Explained
• Live funding: /funding