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A perpetual futures contract gives you long or short exposure to an asset without a scheduled expiry. You post collateral to support the position; periodic funding payments help keep the contract’s price near a reference price. On a decentralized exchange (DEX), the details that shape your experience—how orders match, which price sets your margin, and when a position is liquidated—depend on that venue’s design.
What happens when you open a perpetual position?
A perpetual, or “perp,” is a derivative: one trader takes long exposure and another takes short exposure to an underlying reference asset. It can be used to speculate on a price move or hedge an existing exposure. Unlike a conventional expiring future, it has no scheduled settlement date. A CFTC-hosted filing explains that, without expiry, perpetual derivatives do not have a set date when positions are settled at an expiry price.
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To open a position, a trader commits collateral, often called margin. The position’s notional exposure can be larger than the collateral, creating leverage. The exchange records or otherwise maintains the position and applies its rules for valuing it, charging funding and fees, and closing it if its margin falls too low. The trader’s gain or loss changes with the reference price, while funding and fees can also affect account equity.
There is no single perp-DEX implementation. Some venues use an order book, while others execute trades against oracle prices through keepers or use hybrid arrangements. “Decentralized” by itself does not tell you where matching happens or how an order will be executed.
What are funding rates?
Funding is a periodic transfer between traders on opposite sides of a perpetual market, not a universal fixed fee charged by every platform. Its purpose is to encourage the perp price toward a reference spot or oracle price. A CFTC-hosted filing describes funding as a mechanism used to help the perpetual derivative track the underlying asset’s spot price. It can help correct a premium or discount, but does not guarantee that the prices will converge at every moment.
When the perp trades at a premium to its reference price, a positive funding rate commonly means longs pay shorts. At a discount, a negative rate commonly means shorts pay longs. The venue’s formula determines the actual rate, payment interval, caps, and any other components; the rate can change while a position is open.
One venue’s rules are not market-wide rules
Hyperliquid’s published documentation describes hourly funding. It says the premium is sampled every five seconds and averaged over an hour, and that the rate combines an interest component with a clamped adjustment. Its stated cap is 4% per hour. Those are Hyperliquid-specific published parameters, not general properties of perpetual contracts.
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dYdX documentation describes a different calculation, combining premium observations gathered through the hour with an interest component. Archived dYdX v3 documentation describes hourly calculations based on position size, oracle price, and the hourly funding rate. Do not assume that every market or deployment follows one unchanging schedule: protocol versions and deployed governance parameters matter.
How do margin and leverage lead to liquidation?
Initial margin is the collateral requirement for opening or increasing exposure. Maintenance margin is the lower threshold an open position must continue to satisfy. If an adverse price move reduces account equity below maintenance requirements, the venue may automatically close part or all of the position. Funding payments, trading fees, and other positions can also change the account’s equity and margin picture.
For a cross-margined account, other positions and balances can affect the calculation; with isolated margin, collateral is assigned to a particular position under the venue’s rules. A liquidation price is therefore an estimate, not a permanent line on a chart. It may change as equity, positions, fees, funding, or margin parameters change.
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What price is used to determine liquidations?
Venues commonly use a mark price or another reference price for risk checks rather than relying only on the latest trade. The precise construction and update schedule vary. For example, Hyperliquid’s documentation says validators publish spot oracle prices every three seconds. It describes a weighted median of spot mid-prices from several venues and a final clearinghouse oracle formed from validator submissions using a stake-weighted median. That oracle contributes to the mark price used for margining and liquidations.
Archived dYdX v3 documentation describes a different setup: a median of 15 Chainlink node reports for oracle prices, and exchange spot-price medians for index prices. This is an example from v3 documentation, not a description of every current dYdX deployment. The key question is which price a particular market uses for valuation, funding, and liquidation—and how it is produced.
A worked liquidation example
The dYdX Help Center illustrates the calculation with an isolated short position: a $1,000 account shorts three ETH contracts entered at $3,000, with a 5% maintenance-margin fraction. Under those stated assumptions, its example reaches the calculated threshold near $3,174.60. That is a worked example, not a current ETH quote, a universal maintenance requirement, or a prediction of where another venue would liquidate a position.
How does a decentralized exchange match and execute trades?
Matching design affects what happens between submitting an order and holding a position. A CFTC-hosted filing describes Hyperliquid as an on-chain order-book venue with price-time priority and notes that other perpetual derivatives systems may use off-chain matching or hybrid systems. Its description of transparent trading and settlement in blockchain state applies to the system discussed in that filing; it should not be generalized to every step on every DEX.
GMX documents a different pattern: keepers execute orders against oracle prices rather than passively matching them as resting limit orders on a conventional order book. That difference matters for execution timing. A trigger or margin-related order is not guaranteed to execute before liquidation; during a fast move, a keeper’s action or liquidation check may happen first.
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No tactic guarantees that a position cannot be liquidated or that losses will be limited to what you expect, especially in fast markets. Before opening a trade, check how the venue calculates account equity and maintenance margin, which reference price drives liquidation, and whether margin is isolated or shared across positions. Keep position size and leverage within a level you can tolerate, and account for funding and fees rather than treating posted collateral as the only cost.
Adding collateral or reducing exposure can improve the margin picture, but may not prevent liquidation if prices move quickly, the reference price changes, or other account factors worsen. A stop or trigger order is not assured protection on every execution model; GMX specifically warns that liquidation can precede a related order when keepers and liquidation checks encounter a fast move.
What should you compare before using a perp DEX?
Compare the rules for the specific market and protocol version you plan to use. These details are not interchangeable across platforms:
- Matching and execution: Is the venue an on-chain order book, an off-chain or hybrid matching system, or an oracle-priced keeper model?
- Reference prices: What oracle sources and update cadence are used? How are mark and index prices constructed, and which price drives funding or liquidation?
- Collateral and margin: Which collateral is accepted? Is margin isolated or cross-margined? What are the initial and maintenance requirements, and how is account equity calculated?
- Funding: How often is it paid? How is the premium measured? Is there an interest component or a cap, and which side pays under positive or negative funding?
- Liquidation and backstops: Can positions be partially closed? What penalties apply? Is there an insurance fund, auto-deleveraging, or another loss-allocation mechanism?
What insurance funds and auto-deleveraging do—and do not—mean
Some venues use an insurance fund to absorb liquidation profits or losses under their rules. The dYdX Chain Help Center says its default software can automatically close positions when account value falls below maintenance margin, and that the insurance fund takes liquidation profits or losses. It gives a default maximum liquidation penalty of 1.5%, while noting that governance can adjust the parameter. This is not a guaranteed current charge for every market or a market-wide rate.
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