Perpetuals versus Dated Futures

The short answer

A dated futures contract has an expiry, and expiry is what forces its price to meet spot. A perpetual has no expiry, so convergence has to be manufactured — by a recurring payment between longs and shorts.

That one difference does not remove risk. It relocates it. A dated contract hands you a deadline; a perpetual hands you an open-ended bill.

What expiry actually does

Expiry is not a formality. It is a contractual settlement date on which the contract resolves against a defined reference price for the underlying. Whatever the contract traded at last month, on that date the two must agree.

That obligation is what produces convergence. A trader who sees the contract expensive relative to spot can sell the contract, buy the underlying, and know the gap closes by a fixed date. The arbitrage has a bounded horizon, which is what makes it reliable enough to be worth doing at scale.

Three things follow:

• Convergence is enforced, not encouraged. It does not depend on anyone choosing to act.
• Your holding period has a hard limit. The position ends whether or not you have decided what to do with it.
• Continuous exposure requires a roll — closing the expiring contract and opening the next one, at a cost. That cost is covered in funding and carrying costs.

The roll is also where liquidity moves. Open interest migrates from the expiring contract to the next one over a period of days, and it rarely moves cleanly. A contract that looked liquid a fortnight ago can be noticeably thinner in its final sessions, with wider spreads, at exactly the moment the calendar obliges you to transact.

What replaces it in a perpetual

A perpetual has no settlement date, so the contractual anchor is gone. In its place sits funding: a periodic payment between the two sides, positive when the contract trades above spot and negative when it trades below.

Read that mechanism precisely. Funding does not move the price. It makes holding the crowded side progressively more expensive, which makes the other side progressively more attractive, which makes someone else's arbitrage worth doing. The tether is an incentive, not an obligation.

That is the structural weakness. The incentive only works while the arbitrage remains practical — while there is collateral to post, spot available to buy or borrow, and balance-sheet capacity to hold both legs through the volatility in between. In stressed conditions, those are precisely the preconditions that fail. The gap can stretch, and no date arrives to close it.

The second consequence of removing expiry is more mundane and does more damage. There is no point at which the market forces you to have been right or wrong. A losing position can stay open until margin runs out rather than until a calendar date arrives, and funding accrues the whole time. "No expiry" reads as flexibility. Structurally it is the removal of the one mechanism that ends a position for you on terms other than liquidation.

Supervisors have begun treating retail perpetuals as belonging in the same category as other leveraged retail derivatives — subject to the same leverage caps, risk warnings, margin close-out and negative balance protections — rather than as something genuinely new. That is a reasonable framing to adopt yourself.

Basis is not the same object in both

Basis is the gap between contract price and spot. The word is identical in both structures; what it measures is not.

In a dated contract, basis is a term premium with a maturity. A premium three months out is a rate of carry you can annualise, and it must decay to roughly zero by settlement. The direction of that decay is known. The path is not.

In a perpetual, basis has no decay path at all. Funding holds it near spot on average, but nothing forces it to any particular level at any particular moment. A perpetual can sit at a persistent premium for as long as enough traders are willing to pay funding to keep it there.

The numbers below are invented for teaching. They describe no real instrument and are not a trade idea.

Suppose a three-month dated contract trades at 102 while spot is 100. That two-point premium over a quarter is roughly 8% annualised carry, and it is contractually obliged to be gone in three months. Now suppose a perpetual on the same underlying also trades at 102. Nothing obliges that gap to close on any date; it persists exactly as long as the funding it generates remains tolerable to the side paying it.

The same 2% gap, two entirely different objects: a decaying term premium in one case, a running measure of how crowded positioning is in the other. Treating them as interchangeable is how people end up reading a positioning gauge as a countdown.

Which risks each structure concentrates

Dated contracts concentrate transition risk. You transact at moments dictated by the calendar rather than by your analysis. The roll spread can widen when everyone rolls at once. And the settlement method matters enormously: a cash-settled contract resolves into a cash difference, while a physically settled one held into its delivery window creates a delivery obligation almost no individual trader is set up to meet. The specification tells you which one you hold. Read it beforehand, not during.

Perpetuals concentrate duration risk. The cost of being wrong slowly is unbounded, the tether is only as strong as the arbitrage behind it, and the parameters — funding formula, funding interval, index composition, mark price method — are defined by the venue and can be changed by it. None of this is hidden. All of it sits in documentation most people never open.

Both leave the important risks untouched. Margin requirements, liquidation mechanics and venue risk are identical in kind across the two. Choosing a perpetual over a dated contract, or the reverse, changes nothing in leverage, margin and liquidation. If the sizing is wrong, both structures deliver the same outcome at the same speed.

What to do with this

Decide the holding period first, then pick the structure that fits it — not the reverse.

Before opening either one, answer three questions in writing. How long do I intend to hold this? What does holding it that long cost, in roll spread or accumulated funding? And on what date, or at what level, does this position end if I am neither right nor stopped out?

A dated contract answers the third question for you. A perpetual does not, which means you answer it yourself, in advance, and then actually do it.