Learn Perp Trading - Complete Guide to Perp DEXs

Perpetual futures (or "perps") are derivative contracts that let you profit from price movements without owning the underlying asset. Unlike traditional futures, perpetuals have no expiration date - you can hold positions indefinitely as long as you maintain sufficient margin.

The key innovation of perpetuals is the funding rate mechanism. This periodic payment between longs and shorts keeps the perpetual price anchored to the spot price. When the perp trades above spot, longs pay shorts. When it trades below, shorts pay longs. Most platforms settle funding every 8 hours.

Perpetuals are popular because they offer high leverage (often 20-100x), 24/7 trading, and the ability to profit in both rising and falling markets through long and short positions.

Leverage allows you to control a larger position with less capital. For example, with 10x leverage and $1,000 margin, you control a $10,000 position. This means a 5% price move equals a 50% gain or loss on your margin.

There are two types of margin: - Initial Margin: The minimum collateral required to open a position - Maintenance Margin: The minimum collateral required to keep a position open

Most platforms offer two margin modes: - Cross Margin: Your entire account balance serves as collateral for all positions - Isolated Margin: Only the allocated margin can be lost for that specific position

Start with low leverage (2-5x) until you understand the risks. Higher leverage means faster profits but also faster liquidation.

Liquidation occurs when your position's losses approach your margin. The exchange forcibly closes your position to prevent further losses that could affect the platform.

Your liquidation price depends on: - Entry price - Position size - Leverage used - Maintenance margin requirement

Example: You open a $10,000 long position with $1,000 margin (10x leverage). If the maintenance margin is 0.5%, you'll be liquidated when your unrealized loss exceeds $950 (95% of margin), which happens at roughly a 9.5% price drop.

To avoid liquidation: - Use lower leverage - Set stop-loss orders - Monitor positions during volatile periods - Add margin if price moves against you - Use isolated margin to limit losses to one position

Funding rates are periodic payments exchanged between long and short traders to keep perpetual prices aligned with spot prices. They typically settle every 8 hours.

When funding is positive: - Longs pay shorts - Indicates bullish sentiment - The perp trades above spot

When funding is negative: - Shorts pay longs - Indicates bearish sentiment - The perp trades below spot

Funding fee = Position Size x Funding Rate

Example: Holding a $10,000 long position with a +0.01% funding rate costs you $1 per funding period ($3/day if settled 8-hourly).

Pro tip: During high positive funding, traders often short perps while holding spot to earn funding - this is called "cash and carry" or "basis trading."

Centralized Exchanges (CEX) like Binance and Bybit: - Higher liquidity and lower spreads - More trading pairs and features - Faster execution - Requires KYC and custody of funds - Subject to regulatory actions and potential freezes

Decentralized Exchanges (DEX) like Hyperliquid and Paradex: - Self-custody - you control your keys - No KYC required - Transparent on-chain settlement - Censorship resistant - May have higher spreads and gas costs - Fewer features (improving rapidly)

In 2025-2026, perp DEXs processed over $1 trillion monthly, capturing roughly 18% of the global perpetual market. The gap in liquidity and features is closing fast.

Choose DEX if you value privacy and self-custody. Choose CEX if you need maximum liquidity and don't mind custody trade-offs.

Successful perp trading requires strict risk management:

1. Position Sizing Never risk more than 1-2% of your account on a single trade. With a $10,000 account, your maximum loss per trade should be $100-200.

2. Stop Losses Always set stop-loss orders. Calculate your stop based on technical levels and desired risk, not just a random percentage.

3. Take Profit Orders Lock in gains at predetermined levels. Consider scaling out - taking partial profits at multiple targets.

4. Leverage Limits Start with 2-5x leverage. Even experienced traders rarely exceed 10x. Higher leverage doesn't mean higher profits - it means faster losses.

5. Diversification Don't put all capital in one trade or one direction. Spread risk across uncorrelated assets and strategies.

6. Funding Rate Awareness Factor funding costs into longer-term positions. High positive funding can erode profits on longs over time.

7. Market Conditions Reduce position sizes during high volatility. News events can cause rapid liquidation cascades.

Understanding order types helps optimize execution:

Market Orders - Execute immediately at current price - Pay taker fees - Best for urgent entries/exits - May experience slippage in thin markets

Limit Orders - Execute only at your specified price or better - Often pay lower (or negative) maker fees - No slippage but may not fill - Best for patient entries at support/resistance

Stop-Loss Orders - Trigger when price reaches your stop level - Automatically close positions to limit losses - Essential for risk management

Take-Profit Orders - Trigger when price reaches your target - Automatically close positions to secure gains

Reduce-Only Orders - Can only reduce existing positions - Useful for closing without accidentally reversing

Post-Only Orders - Only execute as maker orders - Rejected if they would take liquidity - Guarantees maker fees/rebates

Open Interest (OI) and Volume are crucial indicators:

Open Interest Total value of outstanding contracts. Rising OI means new money entering; falling OI means positions closing.

OI + Price Rising = Bullish conviction (new longs) OI + Price Falling = Bearish pressure (new shorts) OI Falling + Price Rising = Short covering OI Falling + Price Falling = Long liquidation

Volume Total value traded in a period. High volume confirms moves; low volume suggests weakness.

Combining OI and Volume: - High volume + rising OI = Strong trend confirmation - High volume + falling OI = Position unwinding, potential reversal - Low volume + any OI change = Weak move, likely to reverse

Funding Rates as Sentiment Extremely positive funding often signals overleveraged longs - potential for correction. Extremely negative funding signals overleveraged shorts - potential for squeeze.

Use these metrics alongside price action for higher probability trades.