A 10x position needs only a relatively small adverse move to threaten its margin. The contract may have no expiry, but the trader’s ability to keep it open is always conditional.
Crypto perpetual futures provide long or short exposure without requiring ownership of the underlying asset. Funding payments, leverage, liquidation rules and the venue’s price methodology keep the product operating near its reference market.
Contract price, index price and mark price
The contract price is where buyers and sellers trade the perpetual. An index price is usually calculated from one or more external spot markets. Many venues also use a mark price for unrealised profit and loss, margin checks and liquidations. Its formula may combine the index, the venue’s order book and other adjustments.
These prices can diverge temporarily. A trader can therefore be liquidated according to a mark price even when the last traded price displayed elsewhere is different. Before opening a position, read the exact index constituents, update frequency, fallback rules and mark-price formula.
Hyperliquid’s oracle documentation provides one concrete implementation: validators publish spot oracle prices, which contribute to a mark price used for margining, liquidations and trigger orders. Other venues use different systems.
Funding keeps the contract near spot
Because a perpetual has no expiry settlement pulling it toward spot, venues use recurring funding payments. When the perpetual trades above the reference level, the formula commonly makes longs pay shorts; when it trades below, shorts may pay longs. The precise rate, caps, interval and calculation differ by platform.
Funding is not a fixed return. The sign can reverse and the rate can change sharply. A “cash-and-carry” position that buys spot and shorts a perpetual still faces execution, basis, funding, custody and liquidation risk. If the legs use different venues or collateral, it also introduces transfer and counterparty dependencies.
The Hyperliquid funding specification illustrates why users must consult the current venue formula rather than apply a universal assumption.
Margin and leverage
Initial margin is the collateral required to open exposure. Maintenance margin is the minimum equity required to keep it open. Leverage describes exposure relative to equity; it magnifies percentage gains and losses on the trader’s capital.
With cross margin, multiple positions share an account-level collateral pool. A loss in one position can consume collateral supporting another. Isolated margin limits the allocated collateral for a position, but it does not prevent loss of that allocation or guarantee an orderly close.
Higher selected leverage generally leaves less room for an adverse move. Fees and funding also reduce account equity. A liquidation estimate shown at entry can change as funding accrues, collateral value moves or other cross-margin positions change.
What happens during liquidation
When account equity falls below a venue’s maintenance requirement, the system can reduce or close positions. It may send market orders into the book, liquidate partially, transfer risk to a backstop mechanism or use an insurance fund according to its rules.
Liquidation is not a stop-loss service. In a fast or thin market, the close can occur at a worse price than expected. The official Hyperliquid liquidation documentation, for example, distinguishes order-book liquidation from backstop liquidation and explains different effects for cross and isolated positions.
A stop order can reduce risk but can also trigger from a specified price type, slip or fail under exceptional conditions. Traders must know whether a trigger uses last, index or mark price.
The full cost of a perpetual position
Total cost can include maker or taker fees, spread, slippage, funding, collateral conversion, deposits, withdrawals and liquidation charges. An apparently low trading fee can be outweighed by persistent funding or poor execution.
Profit and loss may also be denominated in collateral that changes value. A position can be correct about the underlying market and still lose because the collateral weakens, the hedge ratio is wrong or one venue becomes inaccessible.
Centralised and onchain venues have different dependencies
A centralised exchange maintains the account and matching system and normally custodies collateral. Users face operator, solvency and withdrawal risk. An onchain perpetual protocol can expose orders and state on a blockchain, but it still depends on smart contracts or chain software, validators or sequencers, oracles, interfaces and bridges.
“Onchain” does not mean risk-free or entirely trustless. Review upgrade authority, validator concentration, oracle design, emergency powers, audit scope and how collateral reaches the system. The CFTC’s virtual-currency advisory also warns about leverage, volatility, cyber risk and limited protections at some venues.
Risk checklist before opening a position
- Confirm the contract, collateral, index, mark price and settlement rules.
- Calculate loss and liquidation distance without assuming a perfect fill.
- Understand cross versus isolated margin and every fee or funding payment.
- Check maximum leverage and margin tiers for the exact position size.
- Assess custody, withdrawals, chain, oracle, bridge and administrative controls.
- Verify legal availability and customer protections in the relevant jurisdiction.
- Plan an exit if the interface, API, oracle or one market becomes unavailable.
Three figures should be recorded before entry: the mark price methodology, the funding cost under a stressed scenario and the equity level that triggers liquidation. The leverage slider is meaningful only after those numbers are understood.
Editorial note: this educational guide was fully reviewed and rewritten on September 3, 2026. It was moved from Crypto Reviews to Crypto Academy because it explains a product category rather than reviewing one venue.
