Perpetual futures — or "perps" — are the most traded instrument in crypto. Over $100 billion in perps trade daily across centralized and decentralized exchanges. If you're new to crypto trading, understanding perps is essential.
What Are Perpetual Futures?
A perpetual futures contract lets you bet on the price of an asset without owning it. Unlike traditional futures that expire on a specific date, perpetual contracts have no expiration. You can hold a position indefinitely.
Long (buy): You profit when the price goes up. Short (sell): You profit when the price goes down.
How Leverage Works
Leverage lets you control a larger position with less capital. If you have $100 and use 10x leverage, you control a $1,000 position.
Example:
- Deposit: $100
- Leverage: 10x
- Position size: $1,000
- BTC moves up 5%: You earn $50 (50% return on your $100)
- BTC moves down 5%: You lose $50
Leverage amplifies both gains and losses. At 10x, a 10% move against you wipes out your entire deposit (liquidation).
Common Leverage Levels
| Leverage | 1% Price Move = | Liquidation Distance |
|---|---|---|
| 2x | 2% P&L | ~50% |
| 5x | 5% P&L | ~20% |
| 10x | 10% P&L | ~10% |
| 20x | 20% P&L | ~5% |
Rule of thumb: Lower leverage = more room to be wrong. Start with 2-5x until you're experienced.
Funding Rates
Since perps don't expire, they need a mechanism to stay close to the spot price. This is where funding rates come in.
When perp price > spot price (bullish sentiment): Longs pay shorts. This discourages excessive long positions and pushes the perp price down.
When perp price < spot price (bearish sentiment): Shorts pay longs. This discourages excessive short positions and pushes the perp price up.
Funding payments happen every 8 hours. The rate is usually small (0.001% to 0.05%), but it adds up — especially with leverage.
Key Concepts
Margin
The collateral you deposit to open a position. With 10x leverage and a $1,000 position, your margin is $100.
Liquidation
If your losses approach your margin, the exchange closes your position to prevent further loss. You lose your margin.
How to avoid liquidation:
- Use lower leverage
- Set stop-loss orders
- Don't use your entire balance as margin
Mark Price vs Last Price
Exchanges use a "mark price" (usually an index of spot prices) for liquidation calculations, not the last traded price. This prevents manipulation through a single large trade.
Open Interest
The total value of outstanding contracts. High open interest means lots of activity. Very high open interest can signal overleveraged markets prone to liquidation cascades.
Perps on Centralized vs Decentralized Exchanges
Centralized (Binance, Bybit)
- Higher liquidity
- Faster execution
- Requires KYC
- Custodial (they hold your funds)
- Opaque order matching
Decentralized (Hyperliquid, Nado)
- Non-custodial (your keys, your funds)
- Transparent on-chain execution
- No KYC required
- Growing liquidity
- Fully auditable
Otomate uses Nado Protocol on Ink Chain for trade execution, giving you the speed of centralized exchanges with the security of decentralized ones.
Trading Strategies with Perps
Directional Trading
The simplest approach: go long if you think the price will rise, short if you think it will fall. Best combined with technical analysis and risk management.
Hedging
Own BTC spot and worried about a crash? Open a short perp position to hedge your exposure. If BTC drops, your short profits offset your spot losses.
Funding Rate Farming
Go long spot + short perps. Collect funding rate payments while maintaining zero net exposure. This is automated on Otomate via the Delta Neutral feature.
Market Making
Place buy and sell orders around the current price. Earn the spread between them. Automated on Otomate via Smart Volume.
Common Mistakes
- Over-leveraging: Using 20-50x as a beginner. Start at 2-3x.
- No stop-loss: Always define your maximum acceptable loss before entering.
- Trading without a plan: Know your entry, exit, and invalidation before clicking "buy."
- Ignoring funding rates: Holding a leveraged long for weeks while funding is 0.1% daily eats your profit.
- Revenge trading: Trying to immediately recover losses leads to bigger losses.
Getting Started with Perps on Otomate
If you're new to perps, Otomate offers multiple entry points:
- Copy Trading: Let experienced traders handle the perps trading for you
- AI Copilot: Ask the Copilot to explain any concept or help you execute your first trade
- Smart Volume: Earn from market making without directional risk
- Strategy Builder: Create custom trading rules in plain English
You don't have to be an expert to benefit from perps. Start with copy trading, learn from watching how pros trade, and gradually develop your own skills.