Crypto Perpetual Futures: Complete Beginner's Guide (2026)
2026-02-15
Perpetual futures are the most traded instrument in crypto — over $100 billion in daily volume. But most beginners lose money because they don’t understand how leverage, margin, and liquidation actually work.
What Are Perpetual Futures?
A perpetual futures contract lets you bet on the price of a cryptocurrency going up (long) or down (short) without owning the actual asset. Unlike traditional futures, they have no expiry date — they trade “perpetually.”
Key difference from spot trading: With spot, you buy 1 BTC at $70,000 and sell it later. With futures, you open a position that profits or loses based on price movement, amplified by leverage.
Why they exist: They allow traders to go short (profit when prices drop), use leverage (trade with borrowed money), and trade without holding the underlying asset.
How Leverage Works
Leverage multiplies your exposure. With 5x leverage and $100 margin:
- You control a $500 position
- If the price moves +10%, you make $50 (50% on your $100)
- If the price moves -10%, you lose $50 (50% of your $100)
- At -20%, you’ve lost $100 (100% of your margin) and get liquidated
| Leverage | $100 Margin Controls | Liquidation Distance |
|---|---|---|
| 1x | $100 | -100% (impossible for crypto) |
| 5x | $500 | -20% |
| 10x | $1,000 | -10% |
| 20x | $2,000 | -5% |
| 50x | $5,000 | -2% |
| 100x | $10,000 | -1% |
The reality: At 100x leverage, a 1% price move against you wipes out your entire margin. In crypto, 1% moves happen in minutes.
What Is Funding Rate?
Since perpetual futures have no expiry, they need a mechanism to keep their price close to the spot price. This mechanism is the funding rate.
- Positive funding rate: Longs pay shorts (meaning the futures price is above spot — bullish sentiment)
- Negative funding rate: Shorts pay longs (futures below spot — bearish sentiment)
- Payment frequency: Every 8 hours on most exchanges (Binance: 00:00, 08:00, 16:00 UTC)
- Typical rate: 0.01% per 8 hours (~0.03% daily, ~10.95% annually)
Why it matters: If you hold a position for days or weeks, funding rates add up. A 0.03% daily funding rate costs ~1% per month. On a leveraged position, this can be significant.
How Liquidation Works
When your unrealized loss approaches your margin, the exchange forcefully closes your position. This is liquidation.
Isolated margin: Each position has its own margin. If Position A gets liquidated, Position B is unaffected. Safer for managing risk.
Cross margin: All positions share one margin pool. More capital-efficient but riskier — one bad position can liquidate everything.
Liquidation price example (Isolated, 5x leverage, SHORT):
- Entry: $70,000
- Margin: $100 ($500 position)
- Liquidation at ~$84,000 (+20% move against you)
The Most Common Mistakes
Mistake 1: Using Too Much Leverage
Beginners see 100x leverage and think “I’ll make 100x profits.” What actually happens: a 1% move liquidates them.
Our approach: We use 5x leverage. This gives us a 20% buffer before liquidation, which is reasonable for hourly positions on altcoins.
Mistake 2: No Stop-Loss
“It’ll come back” is the most expensive sentence in trading. Without a stop-loss, a position can go from -5% to -100% in a single candle.
Our approach: Every position has a stop-loss set before entry. Currently 10% for our BB Squeeze strategy. No exceptions, no manual overrides.
Mistake 3: Oversizing Positions
Putting 50% of your account into one trade means one bad trade wipes half your capital.
Our approach: $60 per position with $3,000 capital = 2% per trade. Even 10 consecutive losses only cost 20%.
Mistake 4: Ignoring Fees
Futures trading fees compound quickly with leverage:
- Binance Futures: 0.02% maker / 0.04% taker (with BNB discount)
- 5x leverage: Effective fee = 0.1-0.2% of your margin per round trip
- 100 trades/month at 0.15% = 15% of capital gone to fees alone
How to reduce fees:
- Use limit orders (maker fee) instead of market orders (taker fee)
- Pay fees in BNB (25% discount on Binance)
- Use a referral code for additional discounts
Getting Started Safely
- Start with paper trading: Most exchanges offer testnet or paper trading. Practice here first.
- Use isolated margin: Limit your risk per position.
- Keep leverage low: 3-5x maximum for beginners. Even professional algo traders rarely use more than 10x.
- Set stop-losses immediately: Before entering any position, know your maximum acceptable loss.
- Start small: Your first 100 trades are tuition. Use minimum position sizes.
- Track everything: Log every trade, every reason, every outcome. You can’t improve what you don’t measure.
Choosing an Exchange
The exchange matters. Fees, liquidity, leverage options, and reliability all differ.
| Factor | Why It Matters |
|---|---|
| Fees | At 100+ trades/month, a 0.01% fee difference = real money |
| Liquidity | Low liquidity = wider spreads = worse fills |
| API reliability | For algo trading, API downtime = missed trades |
| Coin selection | More coins = more strategy opportunities |
We use Binance Futures (highest liquidity, 500+ perpetual pairs). See our full exchange comparison for alternatives.
PRUVIQ trades perpetual futures on 535 coins with 5x leverage. Every trade is published in real-time on Telegram. See our approach, killed strategies, and version history.