Guide: perpetual futures (perp)

This guide explains perpetual futures to someone who has never traded one: what a position is, what makes it gain and lose, what can wipe it out, and how a mandate keeps an agent trading one inside limits. The instrument profile is the normative text; when this guide and the profile disagree, the profile is right.

It builds one idea at a time, on a single example: you have $1,000, and SPCX trades at $100. The figures use made-up prices and a simplified venue; a venue profile, such as Phoenix, defines the real rules.

1. What a perp is

A perpetual future is a contract that tracks an underlying's price, such as a stock or a token, without anyone owning the underlying. Buying one (going long) gains when the price rises. Selling one (going short) gains when it falls. Shorting is as easy as buying, which is the main reason traders use perps.

A perp never expires: you hold it for as long as you like. What keeps its price close to the underlying's is a payment between longs and shorts called funding, which comes later, once the basics are in place.

1.1. The underlying

The underlying is whatever the perp's price follows. You never hold it: the perp only borrows its price, through the venue's index. On Phoenix, it can be one of five kinds of thing, and the kind decides where the price comes from and when:

The further the underlying is from a market that trades around the clock, the more of the week the perp spends without its anchor, which comes up again below. This guide follows SPCX throughout. Phoenix lists every market and its underlying in its market specs.

1.2. Your first trade

You have $1,000, and you think SPCX, trading at $100, is going up. Without a perp, your $1,000 buys 10 SPCX. With a perp, you open a long position on a venue instead, and the trade comes down to five numbers, in the order you meet them:

You don't own any SPCX. You hold a contract that gains $50, $1 for each of your 50 SPCX, every time SPCX rises $1, and loses $50 every time it falls $1. Buying 10 SPCX outright is the same ticket at 1×: a $1,000 notional, 10 SPCX.

1.3. As SPCX moves

Two more numbers follow from the ticket as SPCX moves. Your PnL (profit and loss) is your position times how far SPCX has moved. Your equity is your margin plus your PnL: what's left, and what you'd walk away with if you closed now.

The last row is the catch: the venue closes the position before your equity reaches zero. That is liquidation, and the next section explains exactly where it happens. Going short is the mirror image: short 50 SPCX gains $50 for every $1 SPCX falls.

The ticket and the ledger, in four lines:

notional = margin × leverage                 $1,000 × 5    = $5,000
position = notional ÷ SPCX at entry          $5,000 ÷ $100 = 50 SPCX
PnL      = position × (SPCX now − SPCX at entry)
equity   = margin + PnL

No money changes hands while SPCX moves: the venue re-values your position at its mark price for SPCX, recomputed continuously, and your equity moves with it. The PnL becomes real dollars when you close. On Phoenix the mark is the middle of three prices: an oracle price for SPCX, its own order book (best bid, best ask and last trade), and a smoothed blend of the two. Taking the middle one means a single odd trade or a single bad oracle update can't move the mark, or liquidate anyone, on its own.

2. Leverage and liquidation

Leverage is the one number on the ticket you choose. With the same $1,000 of margin, it sets everything else:

Leverage multiplies the percentage you gain or lose on your margin. It works in both directions, and the losing direction has a floor.

2.1. Liquidation

The venue doesn't let your equity fall to zero. It requires it to stay above the maintenance margin: a share of what your position is worth now, 3% on this venue. Here is the ledger from your first trade again, at 5×, with the columns the venue watches:

Liquidation happens where equity meets the maintenance margin:

1,000 + 50 × (P − 100) = 0.03 × 50 × P
1,000 + 50 P − 5,000   = 1.5 P
48.5 P                 = 4,000
P                      = 82.47

The last column shows the same thing from the other side. The position stays 50 SPCX while your equity shrinks, so your leverage climbs as you lose: 5×, 9×, 17×. The venue liquidates you when it reaches 1 ÷ 3%, about 33×.

When it does, the venue sells SPCX out of your position into the market, at whatever the price is by then. It doesn't wait for zero because selling takes time and costs money: the $124 cushion pays for that and for the venue's liquidation fee, so your loss never lands on the venue or other traders. Phoenix sells only as much as it takes to bring your account back above the floor, so a liquidation can be partial; if the book can't absorb it, a backstop account takes the position over. This guide simplifies: it closes the whole position and counts what's left as lost. A liquidation is final: if SPCX is back at $100 an hour later, you are no longer in the trade.

To open a position, the venue asks for more than the maintenance margin: the initial margin. If it is 10%, a $5,000 notional needs at least $500 of margin, so 10× is the most you can open with. The gap between the two is your room to lose. Leverage above 1 ÷ maintenance (33× here) is impossible: the position would be liquidated the moment it opened.

On Phoenix, SPCX allows at most 15×, so its initial margin is 1 ÷ 15 ≈ 6.67% of the notional, and its maintenance margin is half of that, about 3.33%. This guide uses a round 3%: at Phoenix's 3.33%, your first trade would be liquidated at $82.76 instead of $82.47.

3. Funding

A dated future, the older kind of future, has an expiry date on which it settles at the underlying's price, so its price has to meet the underlying's by then. A perp never settles, so something else has to stop its price drifting away from the underlying's. That something is funding: at a regular interval the venue compares the perp's price with the underlying's, and moves money between longs and shorts.

• When the perp trades above the underlying, funding is positive and longs pay shorts. Being long becomes more expensive, which pulls the price down.
• When the perp trades below, funding is negative and shorts pay longs.

Funding is paid on the notional, whatever the margin. It is small per interval and adds up over time. On Phoenix it settles every hour, on your position times the index price. With no premium at all, an equity perp's longs still pay shorts a small base rate, 0.005% per 8 hours, about 0.06 bp an hour; the guide's figures use made-up rates around it. It is also how perps are used without a view on the price: a trader who is paid funding on a perp and holds the opposite position elsewhere earns the funding with no price exposure.

3.1. When SPCX's own market is closed

SPCX tracks one share of SpaceX, which trades on US stock exchanges. The perp is a separate market between perp traders on the venue, and it trades around the clock, so for part of the week it trades when its anchor can't.

On Phoenix, the index follows external prices 24 hours a day, 5 days a week: from Sunday 8 PM to Friday 8 PM Eastern, across pre-market, the regular session, post-market and overnight trading. Outside that window, over weekends and holidays, Phoenix switches to its own pricing:

When the external window reopens, the index snaps to wherever external SPCX trades, in one step. If perp traders guessed wrong over the weekend, or the news moved SPCX further than the cap allowed, the mark price follows, and a position can be liquidated at a price nobody traded at in between.

Phoenix's index price and impact pricing pages describe the details. Other venues handle closed hours differently, and their venue profiles should say how.

4. Parameters

What a perp is, as the specs and a venue describe it:

The mandate's two limits are the ones an agent is held to. The venue's are the ones the market holds everyone to.

5. Risks

6. When to use it, and when not to

7. Trading a perp under a mandate

The mandate bounds an agent with two numbers for a perp, and the agent is responsible for both:

• max_position caps the filled position, in base units. Resting orders don't count until they fill, so an agent that must stay under the cap sizes its resting orders so that fills can't take it over.
• max_drawdown_usd caps the fall from the peak, in USD, for the whole account. Dividing it by the position gives the price move, from the peak, that breaks the limit. A position of 40 under a $1,000 limit tolerates a $25 move; a position of 70 tolerates about $14.

The venue's liquidation is a separate, harder floor. An agent that keeps the mandate's drawdown limit normally stays far from liquidation, but leverage decides how far: the mandate limits the loss in dollars, the venue limits it as a share of the margin.

8. Scenarios

Each scenario plays 48 hours of a made-up SPCX market against one perp position, under a mandate. The three panels share a time axis: hover one to read all three at that hour. The top panel is the market, the middle what the position made, and the bottom how far it fell from its best, against the mandate's drawdown limit.

9. Check yourself

Three questions for each idea, all on SPCX. Work each one out on the ticket first (margin, leverage, notional, position), then open the answer.

9.1. PnL and leverage

9.2. Funding

9.3. The drawdown limit

9.4. The mandate's rules

10. Glossary

Every term this guide uses is in the glossary. In the text, an underlined term shows its definition when you hover it or tap it.