What a perpetual future is, and how funding works
Source: Hyperliquid / Last updated: / Perpetual-futures prices are reference values.
A perpetual future is a type of futures contract with no settlement date. This article sets out how it works, what the funding rate does, and how the price relates to the spot market.
The technical vocabulary is kept to a minimum. It also covers why perpetual futures on equities are discussed as a 24-hour price marker.
What a perpetual future is
A future with no expiry date
A futures contract normally has a date by which it must be settled. In Japanese markets that date is the contract month. When it arrives, the contract is settled and it ends.
A perpetual future has no such date. "Perpetual" means what it says. As long as the position is held, it can in principle be held indefinitely.
An ordinary future has an expiry. A perpetual future does not.
Side by side with an ordinary future
The two compared directly.
| Point of comparison | Ordinary future | Perpetual future |
|---|---|---|
| Settlement date | Yes, the contract month | None |
| When the date arrives | Settled and closed | The day never arrives |
| How long a position can be held | Until the contract month | In principle, indefinitely |
| Relationship to the spot price | Moves toward spot naturally as settlement nears | No day of convergence, so it can move away |
| What pulls the price together | Both sides settle at the same price at the end | The funding rate |
The difference starts with one thing: whether there is an expiry.
Where they are used
- Originally: a mechanism that became widespread in crypto-asset trading.
- More recently: contracts on equities, equity indices, commodities and foreign exchange have appeared.
A mechanism that spread through crypto now covers equities as well.
Why no expiry means extra machinery
With a dated future, the futures price and the spot price move closer as the settlement day approaches. Both end at the same price.
A perpetual future has no such day of convergence. Left alone, the price could keep moving away from spot.
So something is needed to hold the price near spot. That something is the funding rate, described next.
Without a maturity, a contract needs a mechanism to pull the price back.
How the funding rate works
The funding rate is the adjustment that holds a perpetual future near the spot price. It is called the funding rate in English and the same term is used in Japanese.
Start with the direction of payment
The direction of payment changes depending on whether the price is above or below spot.
- When the perpetual future trades above spot: the long side tends to pay the short side.
- When it trades below spot: the short side tends to pay the long side.
Above spot the long side pays; below spot the short side pays.
Why the price comes back toward spot
When the price runs too far above spot, holding a long position starts to cost money. That damps the buying. The price is pulled back toward spot.
The reverse works the same way. When the price sits below spot, the same adjustment runs in the opposite direction.
The direction of the cost is what pulls the price back toward spot.
When it happens, and between whom
Payments generally happen at fixed intervals. Every few hours, or every hour, depending on the venue.
The payment runs between the long side and the short side.
The interval differs from venue to venue.
What a positive or negative rate shows
Whether the funding rate is positive or negative is sometimes read as a rough gauge of which way demand is leaning at that moment — which of the two sides is the heavier one.
- Positive: the long side is the heavier side.
- Negative: the short side is the heavier side.
That is a reading of the balance of positioning only. It does not guarantee a future move.
It reflects the balance of positioning. It guarantees nothing about what follows.
Reading the gap to spot
It does not match exactly
Even with the funding mechanism, the price does not always match spot exactly. When markets move sharply, the difference can widen for a time.
That difference is the gap to spot.
It does not always match, and in rough conditions the gap can widen.
A second marker for the price
The price of a perpetual future is not the price of the underlying itself. It is a second marker for the price, formed with the spot price as its point of reference.
The two tend to move alike. They are still different things.
They move alike. They are not the same instrument.
Equity perpetuals and 24-hour price discovery
The hours when a cash market is shut
Cash equity markets in Japan and the United States have open hours and closed hours. While a market is shut, there are few ways to know what a listed name is worth right now.
When the cash market closes, the number of price clues drops.
A price still forms
Perpetual futures on equities can keep trading through those hours. Trades happen and a price forms while the cash market is closed.
That produces a rough answer to one question: if this name were trading right now, roughly where would it be? That process is called price discovery.
The answer is produced through the trading of the participants themselves.
It marks the approximate position during the closed hours.
Where StockTicker24 fits
StockTicker24 carries prices of perpetual futures traded on an offshore derivatives venue and shows them in English as 24-hour reference values. Details of the source are set out on the About the data page.
These are not the cash prices of the shares themselves. They are reference prices. Where they are useful is overnight and in the early morning, while cash markets are shut — one clue for a rough read of the current picture.
What is displayed is a reference value, not the cash price of the share itself.
Common questions
If there is no expiry, can a position be held forever?
As long as the position is held, it can in principle be held indefinitely.
When does funding happen?
Generally at fixed intervals — every few hours, or every hour, depending on the venue.
If the funding rate is positive, does the price go up?
Positive means the long side is the heavier side. It is a gauge of the balance of positioning. It does not guarantee a future move.
Is the price shown the cash price of the share?
No. It is a reference value, formed with the cash price as its point of reference.
Summary
- A perpetual future is a futures contract with no settlement date.
- The funding rate is the adjustment that holds it near the spot price.
- The two are still different instruments, and a gap can open between them.
- Perpetual futures on equities are used as a price marker for the hours when cash markets are shut.
- What is displayed is a reference value.
This article explains a mechanism. It does not recommend any particular trade.