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Cryptocurrency · Picture explainer

How do perps work?

A perp lets you gain or lose money as a token's price changes.

1. You hold a contract

The contract gives you price exposure without giving you the tokens.

An illustrative contract for 100 tokens at $10 The contract tracks 100 tokens at an entry price of ten dollars, giving one thousand dollars of price exposure, called notional. The contract delivers zero tokens to your wallet. ILLUSTRATIVE LINEAR CONTRACT 100 tokens × $10 $1,000 exposure Tokens received: 0
What “notional” means
  • Notional is the value of the position: quantity × price.
  • All dollar amounts here are illustrative, with stable-value collateral and a linear payoff.
  • Inverse contracts use different math.

2. There is no expiry date

A crypto perp can stay open while you meet its margin and funding requirements.

A position continues through time without a scheduled expiry A timeline runs from open to day two to later, with an arrow continuing beyond later. An exit can happen when you close the position or the venue liquidates it. Open Day 2 Later No scheduled finish Exit: you close it, or liquidation closes it
Why the product name matters
  • This page covers crypto contracts with no fixed expiry.
  • Some “perpetual-style” products do expire: Coinbase's US contracts have a five-year term.

3. Pick a price direction

A long gains when the price rises; a short gains when it falls.

Gross payoff for the same 100-token contract At eleven dollars, a long gains one hundred dollars and a short loses one hundred dollars. At nine dollars, a long loses one hundred dollars and a short gains one hundred dollars. Both enter at ten dollars. Fees, funding and liquidation are excluded. 100 TOKENS · ENTRY $10 Price Long Short $11 +$100 −$100 $9 −$100 +$100 Before fees, funding and liquidation
Check the payoff
  • Long at $11: 100 × ($11 − $10) = $100 gain.
  • Short at $11: 100 × ($10 − $11) = $100 loss.
  • These are possible price outcomes, not a promise that a position survives to them.

4. Margin backs the position

Less collateral behind the same position makes each dollar of loss a larger share of your margin.

Same exposure, different initial leverage For one thousand dollars of exposure, initial margin of one thousand dollars means one times leverage, two hundred dollars means five times, and one hundred dollars means ten times. A fifty-dollar loss is respectively five, twenty-five and fifty percent of starting margin. SAME $1,000 STARTING EXPOSURE $1,000 margin1× $50 loss = 5% of starting margin $200 margin5× $50 loss = 25% of starting margin $100 margin10× $50 loss = 50% of starting margin Long: $10 → $9.50 gives a $50 loss
How leverage changes after a loss
  • Initial leverage = starting notional ÷ starting margin.
  • In the $100-margin long, a $50 loss leaves $50 of equity; the position is now worth $950.
  • Effective leverage is now $950 ÷ $50 = 19×, if the position remains open.
  • These calculations exclude fees and funding and assume no other positions share the collateral.

5. Funding moves money between sides

At each funding interval, the rate's sign decides which side pays the other.

Funding can flow in either direction Positive funding flows from long to short. Negative funding flows from short to long. In an illustrative interval, a rate of positive 0.01 percent on one thousand dollars of funding notional means the long pays ten cents. Positive rate LongShort Negative rate LongShort Illustrative: +0.01% × $1,000 = $0.10 For one interval; the long pays
What sets the payment
  • Funding encourages the perp price to stay near the underlying market price; the prices can still differ.
  • Rates can change sign. A token's rise or fall alone does not tell you the funding rate.
  • Hyperliquid pays funding hourly and uses a spot oracle price for funding notional. Its formula includes interest and a market premium.
  • The diagram assumes $1,000 of funding notional at that interval. Schedules and formulas vary by contract.

6. Liquidation can close it early

The venue can forcibly close a position when its equity falls below the required maintenance margin.

An illustrative maintenance threshold above zero A schematic tracks the one-hundred-dollar-margin long. Equity drops from one hundred dollars to fifty to twenty-five, crossing an invented fixed forty-dollar maintenance threshold. Liquidation can begin before equity reaches zero. These are not venue rules or a liquidation price calculation. ILLUSTRATIVE MAINTENANCE THRESHOLD $0 Maintenance: $40 $100 $50 $25 Equity = collateral + unrealized payoff Liquidation can begin above $0
Why there is no universal liquidation price
  • The $40 line is invented for this picture. Actual maintenance requirements can change with position value and size.
  • Hyperliquid uses a mark price for liquidation. Funding payments and other positions with shared margin can change the threshold price.
  • Liquidation may close some or all of a position; remaining collateral depends on the venue and execution.