What are perpetual futures?

Perpetual futures, often called perps, are contracts that track an asset’s price without making the trader own that asset. Unlike ordinary futures, they do not have an expiry date.

Imagine putting down $100 and choosing 5x leverage. The contract gives you $500 of price exposure. A 2% move changes the position by about $10 before fees and funding. That is a 10% change against the original $100.

A little more technical

Perps use a funding payment between long and short traders to keep the contract price close to the asset’s spot price. A trader must keep enough collateral behind the position. If losses reduce that collateral below the required level, the position can be liquidated.

Common misunderstanding

Leverage does not create free buying power. It multiplies exposure, so it can multiply losses and bring the position closer to liquidation.

Source: Robinhood Wallet’s perpetual-futures guide provides the worked leverage example and explains funding and liquidation.