Perpetual Futures Basics Series · Part 1 · 2026
Perpetual Futures for Beginners: How They Differ from Spot, How Margin and Leverage Work, and What Mark Price Is
This series has three parts. This one explains the basic structure of a perpetual contract. Part two, the Complete Guide to Funding Rates, covers the payment that settles every few hours while you hold a position. Part three, How to Calculate Liquidation Price, plus Cross vs Isolated Margin, breaks down how liquidation is calculated. Every number in all three articles can be recomputed yourself in the Futures Calculator.
Most crypto trading volume happens in perpetual futures, and most AI trading bots on the market run in futures too. But plenty of people meet futures for the first time through lines like "100x leverage" and "double your money overnight", which is exactly the easiest way to lose money. This article skips market calls and tips and covers only the structure: what a futures contract actually is, how the money is calculated, and where the risk comes from. Once you have that, you'll be able to read every number in your account, whether you trade by hand or use a bot.
1. Spot vs Futures: Six Comparisons
One-line version: spot is "buying the coin"; futures is "trading the price". Buy spot and the coin lands in your account. Open a futures position and what you hold is a "profit-and-loss relationship tied to price moves"; there is no extra bitcoin in your account.
| Spot | Perpetual futures | |
|---|---|---|
| What you hold | The coin itself, which you can withdraw or transfer | A position settled in cash by price; nothing physical is delivered |
| Direction | Buy low, sell high only (you earn when price rises) | Long or short, so you can earn when price falls |
| Capital tied up | You pay for everything you buy | Only a slice is locked as margin (position value ÷ leverage) |
| Worst case | Price falls and you hold a paper loss, but you are never force-sold | When margin runs short the exchange liquidates you, and the margin is essentially gone |
| Holding cost | Trading fees; holding itself is free | Trading fees + funding paid or received at regular intervals |
| Term | None | No expiry date (that's the "perpetual"); only delivery futures expire |
The most important row is the fourth. The worst case in spot is "holding a coin that dropped and waiting for it to come back". The worst case in futures is getting closed out before it ever comes back. Nearly all futures risk control is, at bottom, about dealing with that one row.
2. What "Perpetual" Means
Traditional futures have a delivery date: on expiry day the contract price must converge to spot and settle, and if you want to keep your exposure you close the old contract and open a new one (a roll). The delivery date is itself a forced anchor: the closer you get to expiry, the more the futures price is pulled toward spot.
Perpetual futures remove the delivery date, so in principle you can hold forever. Without an expiry you need a different mechanism to stop the contract price from drifting away, and that mechanism is the funding rate:
Contract price > spot price
More people are long, and the rate is usually positive: longs pay shorts. Holding longs gets more expensive and shorts get a subsidy, which pushes the contract price back down.
Contract price < spot price
More people are short, and the rate is usually negative: shorts pay longs. Holding shorts gets more expensive and longs get a subsidy, which lifts the contract price back up.
Settlement is commonly every 8 hours, but it varies by exchange and by trading pair. For short-term trading it's small change; for a position you hold for days or weeks it adds up to a cost you have to account for. Who pays whom, how it's calculated and when to be wary are covered in part two, the Complete Guide to Funding Rates.
3. Margin, Leverage, Position: One Multiplication
The three terms people mix up most in futures are really just one multiplication:
Position value (notional) = Margin × Leverage
The other way around: Margin = Position value ÷ Leverage
Example: BTC is at 100,000 USDT and you want a long position of 0.1 BTC, so the position value is 10,000 USDT.
| Leverage | Position value | Margin to lock | PnL on a 1% price rise | As % of margin |
|---|---|---|---|---|
| 2x | 10,000 | 5,000 | +100 | +2% |
| 10x | 10,000 | 1,000 | +100 | +10% |
| 20x | 10,000 | 500 | +100 | +20% |
Look at the pattern in this table: with position value held constant, the amount won or lost stays the same (100 USDT each time). Only the percentage of margin and the money locked up change. "High leverage = high risk" is true in one situation: you use all the money in your account as margin and then crank the leverage up, because then leverage is scaling up the position value itself. That distinction is the subject of the leverage and position size guide, which is worth reading next.
Two more margin terms to know. Initial margin is the amount locked when you open the position (the third column above). Maintenance margin is the minimum the position must "have left", usually a small percentage of position value (the maintenance margin rate). Once losses eat the margin below the maintenance level, the exchange liquidates you. How the liquidation price is actually calculated is covered in part three, How to Calculate Liquidation Price.
4. Going Long and Short: How PnL Works
This article covers the most common type, USDT-margined contracts (also called linear contracts): margin is in USDT and PnL is settled in USDT. There's also a "coin-margined" type that uses the coin itself as margin and is calculated differently; it's outside the scope of this article.
Long
PnL = (exit price − entry price) × quantity
Open 0.1 BTC long at 100,000 and close at 102,000: (102,000 − 100,000) × 0.1 = +200 USDT
Short
PnL = (entry price − exit price) × quantity
Open 0.1 BTC short at 100,000 and close at 102,000: (100,000 − 102,000) × 0.1 = −200 USDT
Notice there's no leverage in the formula. Leverage only shows up in "what share of your margin that 200 USDT is": at 10x the margin is 1,000, so this trade is ±20%. In spot, shorting means borrowing the coin; in futures it's simply the same action in the opposite direction. That's one of the most important things futures mean for strategy design, and section 7 comes back to it.
5. Mark Price vs Last Price
Open any futures trading page and you'll see at least two prices. Many people never notice the difference until the first time they get "liquidated even though price never fell that far", or "wicked straight through and didn't get liquidated".
| Last Price | Mark Price | |
|---|---|---|
| What it is | The price of the most recent trade on this contract | A "fair price" the exchange derives from an index price (a weighted price across several spot exchanges) and other data |
| What it's used for | Your orders fill against it, and candles are drawn from it | Major exchanges generally use it to compute unrealized PnL and decide liquidations |
| During a wick | One large order can knock out a long wick in an instant | References several spot markets, so it's usually much smoother |
Why have two prices? If liquidations were decided by the trade price on a single exchange, anyone could use one big order in a thin-liquidity moment to knock out a wick and blow up a pile of positions. Mark price draws on several spot exchanges, which makes it far more expensive to manipulate. That is the reason it exists.
Two things to remember in practice. (1) Last price briefly piercing your liquidation price doesn't necessarily trigger liquidation, because liquidation looks at mark price. (2) The stop-loss orders you set yourself may trigger on last price or on mark price, and many exchanges let you choose when placing the order. The same wick can take out your stop without touching your liquidation price, or the other way around. The exact rules depend on the contract specifications of the exchange you use.
6. The Three Costs of Futures
1. Trading fees: charged on position value, not on margin
Fee = position value × fee rate. Assume a 0.05% rate (an example; use your exchange's actual rate and your tier). Opening a 10,000 USDT position once costs 5 USDT, and a round trip (open and close) costs 10 USDT, which is 1% of a 1,000 USDT margin. This is the line item that high-leverage, high-frequency traders underestimate most often. Calculate your fees with the calculator →
2. Funding: only incurred when you hold across a settlement time
Also calculated on position value, but the direction isn't fixed: you may pay or you may receive. Short-term you'll barely notice it, and the longer you hold the more it matters. See part two.
3. Slippage: the gap between your market-order fill and the price you expected
In fast markets with thin depth, a market order fills some distance away from the price you saw. Stop-outs and liquidations both happen when the market is at its worst, so this cost tends to be largest exactly when you can least afford it.
7. Why AI Bots Trade Futures
With the structure above in mind, it's easy to see why most automated strategies pick futures over spot. Taking CoinTech2u as the example (all figures come from articles we've already published, so you can check each one):
Two-way: it works in down and sideways markets too
A spot strategy is essentially a bet on price going up. Futures let you short, so the strategy depends much less on direction. In the past-12-month live statistics published in The Complete Guide to Crypto Futures AI Trading Bots, about 56% of closed orders were longs and 44% were shorts.
Hedge mode: the precondition for hedged structures
A futures account can enable "hedge mode" (two-way position mode), holding a long and a short in the same coin at the same time, which you can't do in spot. The same statistics show 96.5% of strategies run in hedge mode. That's also why your exchange needs hedge mode switched on when you connect to CoinTech2u (for OKX, see How to Switch to Futures Mode and Hedge Mode in OKX).
Capital efficiency: margin only locks a slice
By the arithmetic in section 3, the same position value at higher leverage simply locks less margin, and the freed-up balance can back multiple coins and multiple add-on layers. CoinTech2u's default leverage is 20x; the system sizes orders by position value, and leverage only decides how much margin is tied up. Why it's designed that way is derived in full in the leverage and position size guide.
The trade-off needs to be said plainly. The three things futures bring, leverage, liquidation and funding rates, don't exist in spot, and a bot can't make them disappear. It can only manage them with risk control. CoinTech2u's approach is for the account-level Smart Protection (Equity Guard / Profit Guard) to close positions proactively at the line you set, before the exchange liquidates you. But slippage in extreme markets, and cases where the exchange liquidates before the protection acts, are things we've spelled out honestly in our risk guide. There is no such thing as a futures strategy that "can't lose". For how stop-loss and liquidation differ in risk management, see Difference Between Stop Loss and Liquidation.
Work through this article's numbers yourself
The Futures Calculator has four tabs: position (margin × leverage), fees, liquidation price and funding. Enter your own entry price, leverage and quantity and watch how each item changes.
8. FAQ
Q: How do I choose between perpetual and delivery futures?
Delivery futures have an expiry date and settle automatically at the delivery price, with the holding cost showing up in the gap between the futures price and spot. Perpetuals have no expiry, and the cost shows up in funding. On major exchanges most volume and most automated trading tools sit in perpetuals, so beginners can simply start by understanding perps.
Q: Is shorting riskier than going long?
At the same position value and leverage, a price move of the same percentage against you costs the same dollar amount whether you're long or short. The difference is in market behavior: crypto's sharp rallies (short squeezes) are sometimes faster than its sharp drops, and a short's theoretical loss is unlimited if price keeps rising. But in futures, liquidation ends the position first, so the maximum loss is usually that position's margin (isolated) or your available account equity (cross).
Q: What should a beginner confirm first before opening a futures position?
Three things: (1) what the position value is (not what the margin is); (2) where the liquidation price is and how far it sits from the current price; (3) whether the margin mode is cross or isolated, which decides whether a blowup costs you this one trade or the whole account. The trade-off on that third point is in part three.
Q: If I trade futures with a bot, do I still need to understand this?
Yes, at least well enough to read your account. The bot executes for you, but the funds sit in your own exchange account, and the unrealized PnL, margin usage and funding history in that account are things you need to be able to read. If you can't, you can't tell whether the strategy is running normally, and you can't set a sensible protection line.
Further Reading
- • Series part 2: The Complete Guide to Funding Rates: Who Pays Whom, How Often It Settles, and How to Work Out Your Holding Cost
- • Series part 3: How to Calculate Liquidation Price: Isolated Margin Formulas, Worked Examples, and How to Choose Between Cross and Isolated
- • What Leverage Actually Is, and Why Changing It on CoinTech2u Doesn't Change Your Risk
- • The Complete Guide to Crypto Futures AI Trading Bots
- • What Are US Stock Perpetual Futures? How They Differ from Buying Stocks and from Traditional Futures
- • Glossary: perpetual futures, leverage, liquidation, funding rate
This article is for explanatory purposes only and is not investment advice. Futures trading carries significant risk and you can lose your entire margin. Rates and prices in this article are examples; refer to each exchange's actual rules.