Perpetual Futures vs. Traditional Futures: What Is the Difference?

Perpetual futures have no fixed expiration date and use funding payments to stay aligned with an underlying market. Traditional futures expire on a scheduled date and converge toward a final settlement price. Both provide leveraged price exposure, but their holding costs, settlement mechanics and risks are different.

Key Facts

• Perpetual futures, commonly called perps, have no fixed expiration date.
• Traditional futures have a defined expiration and settlement date.
• Perps use funding payments to help keep their price close to the underlying reference price.
• Traditional futures converge with the underlying market as expiration approaches.
• Maintaining a traditional futures position beyond expiry requires closing or rolling the contract.
• Both products use margin and can expose traders to losses larger than the collateral initially allocated to a position.
• Neither product normally provides ownership of the underlying asset.

What Are Perpetual Futures?

A perpetual future is a derivative contract that tracks the price of an underlying asset without expiring on a scheduled date. Traders can take long or short positions and keep them open while they continue to meet margin requirements.

Because there is no expiration date, a perp needs another way to remain aligned with its underlying reference market. Most perpetual futures use a funding mechanism that creates periodic payments between long and short positions.

When the perp trades above its reference price, longs will generally pay shorts. When it trades below the reference price, shorts will generally pay longs. The exact funding calculation, interval and settlement process depend on the venue and contract.

What Are Traditional Futures?

A traditional futures contract is an agreement to buy or sell an underlying asset at a future date according to standardized contract terms. Each contract has a specified expiration month and settlement process.

Before expiration, a trader can:

• Close the position by entering an equal and opposite trade.
• Roll the position by closing the expiring contract and opening a later-dated contract.
• Hold the contract through settlement.

At expiration, a traditional future may be cash-settled or physically delivered. Cash settlement resolves the contract through a financial payment based on the final settlement price. Physical delivery requires delivery of the underlying asset according to the contract terms, and which method applies is set by the individual market rather than being a general feature of futures.

Perpetual Futures vs. Traditional Futures

The central difference is not simply that one contract expires and the other does not. Expiration determines how each market stays connected to its underlying price and how the cost of maintaining exposure is paid.

How Do Expiration and Settlement Differ?

A traditional futures position carries a deadline. As expiration approaches, the trader has to decide whether to close, roll or settle, and not deciding is itself a decision, because the contract will settle according to its terms.

A perpetual future removes this scheduled decision. The position does not expire solely because a calendar date arrives. It can remain open as long as the account satisfies margin requirements and the venue continues to support the contract.

No expiration does not mean no exit risk. A perp can still be liquidated, manually closed or affected by a market delisting. Funding can also make a long holding period expensive even when the contract remains open.

Funding Rate vs. Futures Basis

Funding and basis both help explain why a derivative may trade differently from its underlying market, but they work in different ways.

Funding on perpetual futures

Funding is a recurring payment calculated from the difference between a perp and its reference price, together with any other inputs defined by the venue.

If a $10,000 position pays a funding rate of 0.01% at a funding interval, the payment for that interval is approximately $1:

$10,000 × 0.01% = $1

At three intervals a day, that is roughly $3. Rates change at each interval, can reverse direction and may be capped under the contract rules.

Basis on traditional futures

Basis is the difference between the futures price and the underlying spot price. A later-dated future can trade above or below spot because of financing costs, storage costs, expected income, supply and demand, or expectations about future conditions.

When futures trade above spot, the market is commonly described as being in contango. When futures trade below spot, it is in backwardation. As a contract approaches expiration, its price generally converges toward the spot or final settlement reference.

A traditional future does not charge a perpetual-style funding payment. It is still marked to market daily, with gains and losses reflected in the account each session, but that daily variation settlement is an exchange process rather than a transfer between longs and shorts. The contract's basis affects the price at which a position is opened, and rolling into a later contract can introduce a new premium or discount.

Which Costs More to Hold?

Neither instrument is always cheaper. The answer depends on the holding period and on conditions in each market.

For a perp, the trader can estimate the cost from position size, expected funding rates and the number of funding intervals. The difficulty is that future funding rates are not known and may change direction.

For a traditional future, part of the holding cost is already reflected in the basis at entry. If the position must continue beyond expiration, the trader also has to price the rollover, which means closing the expiring contract and opening a position in a later contract month. That switch carries its own costs: the price difference between the two contracts, the transaction costs on both legs, and liquidity that can differ from one contract month to the next.

A useful comparison is:

Expected cumulative perp funding vs. futures basis + expected rollover costs

This comparison should be made using the actual contract specifications and current prices. A low funding rate today does not guarantee that a perp will remain cheaper over a longer period.

How Does Each Contract Stay Tied to the Underlying Price?

A traditional future has a defined final settlement. As expiration approaches, the futures price is pulled toward the spot market or settlement reference because any remaining difference creates an arbitrage opportunity.

A perp has no final date that forces convergence. Its funding mechanism creates an ongoing economic incentive to trade the contract back toward its reference price.

This means the reference must remain reliable throughout the life of the perp. A traditional cash-settled future needs a reliable reference at expiry, while a perpetual contract needs one at every funding interval for as long as it remains active. Venues also use a mark price, rather than the most recent trade alone, to calculate unrealized PnL, margin and liquidations.

How Do Trading Hours Differ?

Trading hours depend on the venue and contract. Many perpetual markets operate continuously, while traditional futures follow an exchange schedule that can include daily maintenance breaks and weekend closures.

Extended hours are not the same as continuous hours. A traditional equity or index future may trade well beyond the cash session and still follow a published calendar, and the gap matters most when the contract references an asset with limited market hours. Traders should check the exact schedule rather than assume that every perp is 24/7 or that every traditional future keeps the same hours.

How Does the Comparison Apply to Equity and ETF Markets?

The structural differences above apply to equity and ETF markets as they do anywhere else. What is specific to equities is that the underlying market closes.

An equity or ETF perp can stay open through nights and weekends while the cash market is shut. During those hours, price discovery leans more on the perp order book and on the venue's off-hours reference methodology, liquidity is usually thinner, and the contract can drift from the last available stock price. The position then carries gap risk into the next session, since the stock can reopen away from where the perp has been trading.

A traditional equity or index future may also trade outside cash-market hours, but its schedule, reference and settlement rules are set by the exchange, and the position still has to be rolled or settled before expiration.

For a deeper explanation of stock and ETF perps, read What Are Equity Perpetual Futures?

How Do Equity and ETF Perps Work on Backpack?

Eligible users can trade supported equity and ETF perpetual futures 24/7 on Backpack. These contracts settle in USD and use funding to remain aligned with their underlying reference markets.

They sit inside Backpack's unified margin account, where one pool of collateral supports spot, perps and borrow positions at once. Two things follow from that. Eligible stock and ETF holdings count toward that pool, so a holding in the underlying can serve as margin for a perp position on the same asset, which is how a trader can hedge a stock position without selling the shares or funding a separate account. And PnL earns USD yield while the position stays open, rather than only after it is closed.

Backpack equity and ETF perps are derivative contracts. They provide price exposure but do not represent ownership, voting rights or a direct entitlement to dividends. Current funding rates, funding intervals, leverage limits, mark prices and other contract specifications are displayed in the Backpack trading interface, and market availability and account eligibility vary by product and jurisdiction.

What Are the Risks of Perpetual and Traditional Futures?

Both products are leveraged derivatives and can produce losses quickly. Losses are not capped at the amount initially committed as margin.

Risks shared by both products

• Leverage risk. A small underlying price change can create a much larger gain or loss relative to margin.
• Margin risk. Falling account equity can trigger liquidation, forced position reduction or a request for additional collateral.
• Liquidity risk. A thin order book can increase spreads and slippage.
• Reference-price risk. A weak or disrupted reference can affect valuations and settlement.

Risks more specific to perpetual futures

• Funding risk. Funding can accumulate over a long holding period and can change direction.
• Divergence risk. No final date forces the contract back to its reference, so a gap can persist.
• Liquidation speed. Liquidation is often automated and can happen quickly in volatile markets.
• Off-hours risk. When the underlying market is closed, liquidity is thinner and the position carries gap risk into the next session.
• Counterparty and venue risk. The venue sets contract rules, holds collateral and runs the liquidation engine, without a clearing house standing between the two sides of the trade.

Risks more specific to traditional futures

• Expiration management. The position has to be closed, rolled or settled before expiry.
• Rollover risk. Rolling introduces transaction costs and basis risk.
• Delivery risk. Physical delivery may apply if the position is held through expiry.
• Liquidity migration. Liquidity can move from an expiring contract to a later month.
• Intermediary risk. Exposure runs through a broker and a clearing member, each with its own margin and risk rules.