Perpetual futures = "perps"

Investment Analysis Clubs Macro Economic Trends and Risks
1

I’m always interested to see a new investing term.

https://www.wsj.com/finance/currencies/bitcoin-per…

Get Rich or Get Wiped Out: Bitcoin’s Hottest New Trade
Perpetual futures offer traders extreme leverage to bet on cryptocurrencies

By Gunjan Banerji, The Wall Street Journal

Traders seeking rapid returns have made a speculative bitcoin play one of the most popular crypto bets globally: so-called perpetual futures. These potentially offer returns of 10, 20 or even 100 times an initial investment — or huge losses that could leave a trader with nothing…

Known as perps, the contracts give traders access to extreme leverage …Their emergence is a sign that financial markets, which have steadily grown riskier since 2020, will likely keep growing more speculative. …

Perps made up around 68% of bitcoin trading volume in 2025, according to Adam Morgan McCarthy, head of research at analytics firm Kaiko. Here’s how they work:

The instruments are derivatives, but unlike traditional contracts lack expiration dates or so-called “strike prices,” at which contracts can be exercised. Gains or losses are based on bitcoin’s moves; the trades are akin to options that automatically roll further and further out in time…the platform isn’t limiting itself to leverage of 10 times the initial investment. …

When perps are trading at higher levels than the spot price, those holding long positions, meaning they are bullish on bitcoin, regularly pay something called a funding rate to the counterparty on the derivative. This is designed to keep the prices of futures and underlying bitcoin prices linked. These can eat away at profits, depending on how high they are. Those who are short the contracts can receive the funding rate.

The bets can be big moneymakers for those hosting the trades… [end quote]

No surprise that such leveraged gambling has inflated the price of bitcoin.

https://www.tradingview.com/symbols/BTCUSD/?timefr…

This is a pure speculative bubble. The use of “perps” that encourage leverage but also have a “funding rate” - skim - makes them even more dangerous to long gamblers.

Needless to say, I wouldn’t touch this with a 10 foot pole.
Wendy

8 Likes
2

Derivatives (equity future, equity option, equity swap) that are long an underlying “asset” (equity shares, bitcoin if you consider it an asset) will normally have an interest cost (equals “funding rate”).

The interest cost will be the interest rate times the value of the underlying asset (notional value, adjusted for delta in the case of an option).

Leverage is not free, It is borrowing the monies to replicate the performance of the underlying asset.

2 Likes
3

Only a 10-foot pole? My distance is a 100-foot pole.

But the market is like the tide. All the boats will sink.

4

How are these substantially different than the X2 and X3 ETFs that already exist for both indices and individual stocks?

WSJ is paywalled so I am unable to read the article.

1 Like
5

Here’s a handy-dandy comparison chart -

Feature Perpetual Futures (Perps) 3x Leveraged ETFs
Asset Type Derivative contract. Pooled investment fund (like a stock).
Expiration Date No expiration date; can be held indefinitely as long as margin requirements are met. None, but their daily rebalancing structure makes them unsuitable for long-term holding.
Daily Compounding No daily compounding. A funding rate mechanism is used to keep the perp’s price in line with the spot price. This is a periodic payment between long and short traders. Daily compounding and rebalancing are central to its function. The fund resets its leverage every day, which causes returns to diverge from the index over periods longer than a single day.
Funding Rate A key component. The fee is paid periodically between long and short positions to align the perp’s price with the underlying asset’s spot price. This fee fluctuates based on market conditions. No specific funding rate is paid directly between traders. The cost of maintaining leverage comes from the fund’s expense ratio and the costs of the derivatives used.
Leverage Variable. The amount of leverage you use is determined by the trader. Fixed at 3x the daily return of the underlying index.
Long-Term Suitability Can be held long-term, though funding rate costs and market volatility are ongoing considerations. Not suitable for long-term holding due to the effects of daily compounding, especially during volatile or sideways markets.
Liquidation Risk High. Leverage amplifies both gains and losses. If the position moves against you and you can’t meet your maintenance margin, the position will be liquidated. High. Similar to perps, leverage magnifies losses. Extreme market moves can cause significant, permanent loss of capital.
Trading Environment Primarily traded on cryptocurrency exchanges (historically) but are now also offered by some regulated exchanges. Traded on traditional stock exchanges, just like regular ETFs.
5 Likes
6

ETFs do not do that. You buy risk to get such promise.

1 Like
7

For my get rich quick “investment”, I’ll stick with kicking in a buck a week into the pool with some people I used to teach with. The odds of hitting it big are about the same and we get the joy of sharing our losses and our dreams of winning together. So even when we lose, we win. :money_with_wings:

5 Likes