To better understand what is Perpetual futures, let's first take a look at what is a traditional form of futures.
Crypto futures are contracts that represent the value of a specific cryptocurrency. You do not possess the underlying cryptocurrency when you buy a futures contract. Instead, you own a contract under which you have consented to buy or sell a particular cryptocurrency at a later date.
With a futures contract, you can open a 1 BTC futures position at a portion of its market value. Futures contracts allow you to profit from short-term price movements in either direction. Regardless of whether the cost of Bitcoin falls, you can participate in the downtrend and benefit as prices continue to go lower. Futures contracts can also be used to protect against unexpected risks and extreme price volatility, making them ideal for miners and long-term investors.
The futures price is based on the prevailing spot price plus the futures premium. The futures premium could be either positive or negative. A positive premium shows that the futures price is higher than the spot price; on the other hand, a negative premium indicates that the futures price is lower than the spot price. Changes in supply and demand may cause the future premium to fluctuate.
Long position – a position against the market, when the profit is derived when the asset's price goes up, i.e. opening a long position entails the purchase of an asset for subsequent resale at a higher price.
Short position – a position with the market, in which the profit is derived when the asset's price goes down, i.e. opening a short position entails a sale of an asset for subsequent repurchase at a lower price.
A perpetual contract is a sort of futures contract, that does not have an expiration date, unlike the traditional form of futures. As a result, anyone can hold a position for as long as they like. Aside from that, the trading of perpetual contracts is based on an underlying Index Price. The Index Price is comprised of an asset's average price as determined by major spot marketplaces and their comparable trading volumes.
Perpetual contracts, unlike traditional futures, are frequently traded at prices that are equivalent to or extremely similar to spot markets. The asset price may, however, differ from the spot market price in exceptional market situations. Still, the biggest difference between the traditional futures and perpetual futures is that there is no ‘settlement date’ in the perpetual futures.