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Perpetual futures dominate crypto trading, but funding rates worry traders

Traders say perps’ deep liquidity and margin efficiency come with a recurring funding-rate cost that can build as positions are held.

Reported · Written up by our desk · Market Structure

Perpetual futures, known as perps, have become the default derivatives tool for many crypto traders because the contracts have no expiry. CoinDesk notes that while bitcoin and ether traders can use spot, futures, and options, traders in other altcoins often rely on perps because dated futures for those assets are thinly traded, and spot is a secondary option for anyone not planning to hold long term.

CoinDesk quotes derivatives and retail traders describing why perps are so widely used, including deep liquidity, comparatively low trading fees, and strong margin efficiency, which measures how much trading exposure can be supported per unit of collateral. Traders also point to structural reasons for dated futures being less attractive, such as having to be replaced at expiry, which they say adds friction and costs.

A key drawback highlighted in the article is the funding rate, described as a recurring cost that functions like an interest charge that accumulates the longer a position is kept open. CoinDesk reports traders are concerned about how this cost can add up over time, even as perps remain the main venue for derivatives exposure.

The article also includes a trader view from STS Digital and an independent trader, Lucas Krenn, who says perps are essentially the trading plumbing for their firm because standard dated futures liquidity is too limited to be usable outside bitcoin and ether. CoinDesk adds that perps also help avoid price swings that can come from illiquid dated futures, where large orders can move prices and increase slippage, harming execution.

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