A perpetual futures contract lets you take long or short exposure to an asset without an expiry date. You post collateral to support the position, pay or receive periodic funding while it remains open, and may be liquidated if your account equity falls below the venue’s maintenance-margin requirement. On decentralized exchanges (DEXs), the details depend on how each protocol handles execution, price references, margin and liquidations.
What is a perpetual futures contract?
A perpetual, or “perp,” is a derivative position that tracks an underlying asset without a scheduled settlement date. A long position generally gains value when the reference price rises; a short generally gains value when it falls. Traders may use perps to speculate or hedge, but they do not necessarily own or take delivery of the underlying asset.
Unlike a dated futures contract, a perp has no expiry at which open positions are automatically settled. A CFTC-hosted filing explains that perpetual derivatives instead use a funding-rate mechanism intended to keep the contract price aligned with the underlying asset’s spot price. That mechanism can encourage trading against a premium or discount, but it does not guarantee that the perp price will match spot at every moment.
What happens when you open and hold a position?
- Choose a market and direction. Select a perpetual market and decide whether to go long or short. The contract’s notional exposure reflects the position size and its reference price.
- Provide collateral. The venue uses your collateral to support the position and assess whether you meet its initial-margin requirement. Leverage means your exposure is larger than the collateral you post; it also means adverse price moves can consume that collateral quickly.
- Keep track of the position. As the reference price moves, your unrealized profit or loss changes. Funding payments, trading fees and other positions may also affect your account balance or equity, depending on the venue’s margin model.
- Close or reduce the position. You can submit an order to reduce or close exposure, subject to the venue’s execution rules and available liquidity. If you leave the position open, funding may continue to accrue at the venue’s specified intervals.
The precise account-value calculation, eligible collateral and margin treatment are protocol-specific. For example, archived dYdX v3 documentation describes account value as quote balance plus marked position values, compared with initial- and maintenance-margin requirements. That v3 description should not be assumed to define every current dYdX deployment.
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Funding is a periodic transfer between the long and short sides of a perpetual market. It is not a universal trading fee or a fixed market-wide rate: each venue sets its own calculation, interval and any cap. A positive rate commonly means longs pay shorts; a negative rate commonly means shorts pay longs. The direction and amount depend on the perp’s premium or discount and the venue’s formula.
For example, Hyperliquid’s official documentation describes hourly funding. It says the premium is sampled every five seconds and averaged over an hour; when the perp price is above its oracle reference, longs pay shorts, and when it is below, shorts pay longs. The documentation states a cap of 4% per hour for that venue. These are Hyperliquid-specific published parameters, not general rules for perps.
dYdX documentation describes a different approach, combining premium observations over an hour with an interest component. Its archived v3 documentation describes hourly payment calculations based on position size, oracle price and the hourly rate. Protocol documentation and governance parameters can change, so check the specific market and deployment rather than assuming one schedule applies to every dYdX market.
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Because funding can recur while a position is open, it affects the cost or return of holding exposure. A favorable price move does not by itself mean a position was profitable after funding and other charges.
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A venue may use different prices for trading, funding, position valuation and risk checks. The oracle price is a protocol’s reference price, often built from external market data. A mark price is a risk-oriented price used by a venue to value positions or assess margin; its construction varies. The price shown for the latest trade is not necessarily the price used to determine liquidation.
Hyperliquid’s documentation says validators publish spot oracle prices every three seconds. It describes a weighted median of spot mid-prices from several venues, followed by a stake-weighted median of validator submissions to produce the clearinghouse oracle. The oracle contributes to the mark price used for margining and liquidations.
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By contrast, archived dYdX v3 documentation describes oracle prices based on the median of 15 Chainlink node reports and index prices based on exchange spot-price medians. That is a version-specific example, not evidence of the current oracle design on every dYdX deployment. Oracle sources, aggregation methods and update timing can all differ across protocols.
How does liquidation happen?
Initial margin is the requirement for opening or increasing exposure; maintenance margin is the minimum equity requirement for keeping an open position. If losses, funding or fees reduce account equity below the applicable maintenance requirement, the protocol may automatically close some or all of the position. The exact trigger and execution process depend on the venue.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsA displayed liquidation price is an estimate, not a guaranteed boundary. It can change as the position, account balance, funding, fees or other positions change. With cross-margin, other positions and shared collateral can affect the account’s risk; isolated-margin positions are assessed under the venue’s isolated rules.
dYdX Chain’s help documentation says its default software can automatically close positions when account value falls below maintenance margin. It describes protocol-generated liquidation matches and an insurance fund that takes liquidation profits or losses. The same help page states a maximum liquidation penalty of 1.5% in default software, while noting that governance can adjust the parameter. It should not be treated as a universal or guaranteed charge for every market or deployment.
A liquidation-price example
As an illustration—not a current market quote or trading advice—the dYdX Chain help page gives an isolated short example with a $1,000 account, three ETH contracts entered at $3,000, and a 5% maintenance-margin fraction. Under those stated assumptions, the calculated threshold is approximately $3,174.60. Different position sizes, collateral, fees or margin parameters would produce a different result.
How can you reduce liquidation risk?
- Use less exposure. A smaller position relative to your collateral gives adverse price moves less margin to consume, though it cannot eliminate risk.
- Monitor equity and margin requirements. Account value can change with market prices, funding and fees; check the venue’s own risk display and rules.
- Understand your margin mode. Determine whether collateral is isolated to one position or shared across positions, and how the venue calculates maintenance margin.
- Do not rely on a trigger order as a guarantee. On GMX, for example, orders are executed by keepers against oracle prices. Its documentation warns that a related stop-loss or margin order may not execute before a liquidation check during a fast move.
- Adding collateral may help, but is not a promise of safety. Depositing more collateral or reducing position size can change the margin picture. Neither action guarantees protection from losses or liquidation in fast markets.
How can a decentralized exchange execute perp trades?
“Decentralized exchange” does not identify a single matching architecture. A CFTC-hosted filing describes Hyperliquid as an on-chain order-book venue with price-time-priority matching and says other perpetual derivatives models may use off-chain order books and matching or hybrid systems. Its description of transparent blockchain trading and settlement should not be generalized to mean every step on every DEX is always on-chain.
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GMX documents a different execution pattern: keepers execute orders against oracle prices rather than passively filling them like resting limit orders on a centralized order book. This makes keeper timing and oracle-price behavior relevant to order execution. GMX also documents auto-deleveraging: if a configured ratio of pending profit and loss to pool value is exceeded, profitable positions may be partially or fully reduced.
| Design question | Examples described in official or filed documentation | Why it matters |
|---|---|---|
| How are orders matched? | Hyperliquid is described in a CFTC-hosted filing as an on-chain order book with price-time priority; other models may use off-chain matching or a hybrid design. | Matching location and order priority affect how orders reach execution and what on-chain activity is visible. |
| How are some orders executed? | GMX documents keeper execution against oracle prices. | Keeper timing and the reference price can affect execution; a trigger order is not guaranteed to execute before liquidation. |
| What happens under pool stress? | GMX documents auto-deleveraging when a configured pending-profit-and-loss-to-pool-value ratio is exceeded. | Profitable positions can be reduced under the protocol’s stated conditions. |
What should you compare before using a perp venue?
Read the documentation for the exact protocol, deployment and market you intend to use. A useful comparison focuses on rules that can directly change your exposure, cost or chance of forced closure:
- Matching and execution: on-chain order book, off-chain matching, hybrid system or oracle-priced keeper execution.
- Reference prices: oracle inputs, update frequency, mark- and index-price construction, and which prices drive funding and liquidation.
- Collateral and margin: accepted collateral, cross- versus isolated-margin behavior, initial and maintenance requirements, and account-equity calculation.
- Funding: payment interval, premium calculation, interest component, cap and payment direction.
- Liquidation and backstops: partial or full closure, penalties, insurance-fund rules and any auto-deleveraging or socialized-loss mechanism.
Insurance funds and auto-deleveraging are protocol mechanisms with specific rules and limits; they do not remove trading, execution or protocol risk. Exact parameters such as funding rates, oracle inputs, margin fractions and penalties can change, so verify the venue’s current documentation before relying on a quoted setting.
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