Before opening a perpetual futures position, check how funding is calculated, how much margin can be lost before liquidation, which prices trigger that liquidation, and what happens if the venue cannot close the position cleanly. Also examine the collateral, loss-sharing rules, liquidity and jurisdiction. Perpetuals have no fixed expiry, so funding—not expiry-driven settlement—is the recurring mechanism intended to keep the contract price near a spot reference.
Understand what keeps a perpetual contract near spot
A perpetual future has no fixed expiration date. Instead, it uses periodic funding payments between long and short position holders to encourage the contract price to track a spot reference. Depending on the funding rate and your position side, you may pay or receive funding. It is a variable holding cost or receipt, not a guaranteed route to convergence. The SFC’s framework and a 2026 SEC comment submission describe these mechanics.
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That means the contract can trade above or below its reference, and holding it can incur funding payments even if the underlying asset’s price does not move against you. A high funding rate alone does not establish manipulation or a malfunction: it may reflect demand for leveraged exposure. But persistent, economically large payments can affect whether a position makes sense over its intended holding period.
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Check funding over the period you expect to hold
Before trading, find the contract’s funding formula and inputs, calculation window, payment frequency, any cap, and settlement asset. Confirm which side pays at positive and negative rates, and whether funding changes the position’s margin or profit and loss. Look at historical as well as projected funding, then assess the effect over your own expected holding period; a single current rate cannot tell you what future payments will be.
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The SFC framework calls for funding inputs and settlement frequency to be disclosed and, for platforms within its scope, funding to settle at least once every 24 hours. That cadence is specific to its Hong Kong framework, not a universal rule for every venue.
Measure leverage against the liquidation buffer
Compare the position’s notional exposure with the collateral required. Identify initial margin and maintenance margin separately, along with leverage limits, any margin tiers for larger positions, and whether margin is isolated to one position or shared across positions. The maintenance-margin threshold matters because reaching it may trigger forced liquidation.
For illustration, the SEC submission describes a $100 position backed by $10 of margin as 10-to-1 leverage. This is an explanatory example, not a recommendation or a rule that applies to every venue. Leverage means less margin is needed to establish exposure, but it also leaves less room for an adverse move before the maintenance threshold is reached.
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Do not assess risk from an advertised maximum leverage ratio alone. The outcome also depends on initial and maintenance margin, liquidation policy, market liquidity, and resources available to absorb a liquidation shortfall. Higher initial margin or an earlier liquidation trigger may reduce the chance of an account shortfall, while increasing the chance of liquidation during a temporary adverse move.
Find out how valuation and liquidation work
Determine which price the venue uses to calculate mark-to-market profit and loss and trigger liquidation. A mark price may be decisive even when it differs from the latest traded price, so watching only a venue’s last trade can give an incomplete view of your liquidation risk. The SFC framework describes the mark price as the value used for mark-to-market profit and loss and liquidation.
Read whether liquidation is partial or full, what fees apply, and how the venue tries to close a position. In a fast market, a venue may not be able to close at the trigger price; gaps, limited liquidity, and delays can allow losses to worsen during liquidation. Cascading liquidations can add pressure to prices and make orderly execution harder. Ask what happens if the order book cannot absorb the closing trade.
For the reference prices behind the mark price, check how the index is constructed, which markets feed it, how often it updates, and how the venue handles outliers or outages. Find out whether it uses multiple independent sources and has automatic failover if an input is disrupted. The SFC framework calls for transparent, objectively verifiable pricing and funding methods and sets out these reference-data expectations for platforms within its scope.
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Identify both the accepted collateral and the contract’s settlement asset. Contracts referencing the same cryptocurrency can have different risk properties if one is settled in a stablecoin and another in the coin itself; collateral that can lose value alongside the position may compound losses. The SEC submission specifically notes that the distinction between Tether-denominated and coin-denominated contracts matters.
Read the venue’s custody, segregation, and insolvency terms rather than assuming collateral is protected in a particular way. Then trace its default-management order: order-book liquidation, backstop liquidity providers, insurance or reserve funds, auto-deleveraging (ADL), and any other loss-sharing mechanism. Establish when a venue can reduce or close a non-defaulting trader’s position. A stated insurance fund does not by itself show that it will be sufficient or available in every scenario; review the venue’s current rules and disclosures.
Assess liquidity, fees, and operational disruption
Check order-book depth and likely slippage for the position size you are considering, as well as trading and liquidation fees and funding payments. A quoted price is not proof that a position of your size can be opened or closed at that price. The SFC framework calls for stress testing and orderly trading, settlement, and liquidation under extreme but plausible conditions; it does not establish a universal liquidity threshold or fee level. Those details are contract- and venue-specific.
Also find the venue’s procedures for outages and other disruptions: what happens to orders, pricing inputs, settlement, and liquidation if a system or reference market is unavailable? The SFC framework calls for timely reference data and automatic failover for disrupted inputs within its scope. Check the venue’s own current disclosures for the actual procedures that apply to your contract.
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Compare contracts using the same questions
When comparing venues, record the terms side by side rather than comparing only headline leverage or the underlying asset. A contract’s rules and protections may differ even when it references the same asset.
- Funding: formula, inputs, cap, payment frequency, and settlement asset.
- Margin: initial and maintenance requirements, leverage tiers, and isolated or shared margin.
- Prices: index sources and construction, mark-price method, update frequency, and outage handling.
- Liquidation: trigger, partial or full process, fees, and treatment of execution shortfalls.
- Collateral: accepted assets, custody, segregation, and insolvency treatment.
- Default management: insurance or reserve-fund rules, ADL triggers, and other loss-sharing terms.
- Trading conditions: depth at your intended size, fees, and disruption procedures.
- Access and protections: applicable jurisdiction, eligibility requirements, and regulatory protections.
Keep study results and regulation in context
A 2026 submission to the SEC by Carnegie Mellon University authors Ariel Zetlin-Jones, Bryan R. Routledge, and Nicolas Christin discusses sample Sharpe ratios of 8.76 for a Bitcoin Tether-denominated short-perpetual/long-spot carry trade and 4.93 for a Bitcoin coin-denominated carry trade. The submission attributes those historical, sample-specific results to a referenced paper, “The Crypto Carry Trade,” a working paper dated 18 August 2023. They are not expected returns, current market-wide statistics, or evidence that the strategy can be reproduced. The submission is an author filing, not an SEC finding or adopted rule.
The SFC document is a high-level framework for virtual asset trading platforms licensed in Hong Kong, last updated 11 February 2026. It says perps within that framework should only be offered to professional investors and that a platform operator should assess each client’s derivatives knowledge before providing perps trading services. These are Hong Kong framework provisions, not universal eligibility rules. Check the rules and protections that apply where you live and at the venue you are considering.
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