Michaela
Perpetual futures have become one of the most popular tools in crypto trading, and it is easy to see why. They let traders speculate on price moves with leverage, trade anytime day or night, and hold positions without worrying about an expiry date. That combination can feel exciting and accessible, especially in a market that never sleeps.
Key Points
- Perpetual futures are often misunderstood, with myths around settlement, funding, and leverage.
- Funding rates, liquidation, and price divergence significantly impact trading results.
- Education, position sizing, and understanding the mechanics are more important than experience level.
But here is the catch. Many people jump into perpetual futures without really understanding how they work behind the scenes. Small misunderstandings about fees, leverage, or liquidation can quietly turn into expensive lessons. This article is a friendly myth-busting guide that breaks things down in plain language, helping you understand perpetual futures before real money is on the line and giving you a smarter way to manage risk from the start.
1. Perpetual Futures Never Settle
A lot of traders assume perpetual futures just float endlessly without any kind of settlement. The confusion usually comes from the fact that these contracts do not have an expiry date like traditional futures. No expiry often gets translated into “no settling at all,” which is not how it works. In reality, positions are constantly settling through funding rates and margin checks happening behind the scenes. Your balance is being adjusted over time based on market conditions, even if you never close the trade.
Practical takeaway: If you plan to hold a position for days or weeks, remember that ongoing settlement can slowly change your results, even if the price barely moves.
2. Funding Rates Are Just a Small Fee
Funding rates are often brushed off as a tiny cost that does not really matter. That mindset can be dangerous. Funding rates exist to keep perpetual futures prices close to the spot market, and they can work for or against you. Sometimes you pay funding, and sometimes you receive it, depending on whether the market is leaning bullish or bearish. Over short periods, the impact might feel small. Over longer periods, it can seriously affect profitability.
Practical takeaway: Always check the funding rate before opening a trade, especially if you plan to hold it for a while.
3. Higher Leverage Means Higher Profits
Leverage is one of the biggest attractions of perpetual futures, but it is also where many traders get burned. The logic seems simple. More leverage means bigger gains. What often gets ignored is that losses grow just as fast. A small price move against a highly leveraged position can erase your margin in seconds. Leverage is not a cheat code. It is a volume knob that turns everything up, including risk.
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Practical takeaway: Use leverage carefully and treat it as a way to fine tune risk, not as a fast track to profits.
4. Liquidation Only Happens in Extreme Moves
Many new traders think liquidation only happens during massive market crashes or wild price spikes. In reality, liquidation can occur during relatively normal price movement if leverage is too high. Maintenance margin and mark price play a big role here. Even a modest dip can trigger liquidation if there is not enough margin backing the position. This is why liquidations often surprise traders who thought they were safe.
Practical takeaway: Always know your liquidation price before entering a trade, not after the market moves.
5. Perpetual Futures Track Spot Prices Exactly
It is easy to assume that perpetual futures always match the spot price perfectly. Most of the time they stay close, but they are not identical. Factors like market sentiment, funding rates, and trader positioning can push prices into a premium or a discount. This difference is known as the basis, and it can impact when you enter or exit a trade.
Practical takeaway: Pay attention to price differences between spot and perpetual markets when planning entries, exits, and profit calculations.
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6. Perpetual Futures Are Only for Advanced Traders
Perpetual futures often get labeled as tools only pros should touch. That idea scares some beginners away and gives others false confidence once they think they are “advanced.” The truth is that these contracts are not inherently dangerous or reserved for experts. The real risk comes from trading without understanding how funding, leverage, and liquidation work together.
Practical takeaway: Education, smart position sizing, and discipline matter far more than experience level when trading perpetual futures.
Perpetual Futures: Why Understanding the Mechanics Matters
Perpetual futures can be powerful tools, but only if you know what is actually happening under the hood. Once the myths are stripped away, these contracts become far less intimidating and far more manageable. Understanding things like funding rates, leverage, and liquidation rules gives you control, instead of leaving your results up to guesswork or luck.
Clearing up misconceptions helps traders stay calm when markets move fast, make decisions based on logic instead of emotion, and avoid mistakes that can quietly drain an account. Perpetual futures are not about chasing excitement or pushing buttons at random. They are about preparation and awareness. In a market known for sudden swings, knowledge is your first and best line of defense.
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MICHAELA
Michaela is a news writer focused on cryptocurrency and blockchain topics. She prioritizes rigorous research and accuracy to uncover interesting angles and ensure engaging reporting. A lifelong book lover, she applies her passion for reading to deeply explore the constantly evolving crypto world.
