Long or short, with settlement — and a funding rate to keep it honest.
What you will learn
Explain futures vs perpetuals
Understand short selling mechanics
Understand funding rates
Payoff structures
Payoff structures
Reading direction
Reading direction
Futures vs perpetuals
A futures contract has a fixed expiry date and settles then. A perpetual (perps) has no expiry and uses a funding rate to keep its price anchored to the spot price. Perps dominate crypto because they never roll over.
Going short
Shorting is betting the price falls: you sell borrowed assets high, hoping to buy them back lower. Profit = the difference. Unlike going long (loss capped at 100%), a short's potential loss is theoretically unlimited — the price can rise forever.
💡 A short trade
You short 1 BTC at $60,000 (borrowing and selling it). If BTC falls to $54,000, you buy it back, return the borrowed BTC, and pocket $6,000. If BTC rises to $66,000, you must buy back at a $6,000 loss. Direction is everything.
Funding rates
In perps, when longs outnumber shorts, longs pay shorts (positive funding); when shorts dominate, shorts pay longs. Funding keeps the perp price near spot and transfers money from the crowded side to the uncrowded side — every few hours, automatically.
💡 Funding as a cost (or income)
Holding a leveraged long in a euphoric market can cost 0.1%+ every 8 hours — over 100% annualized. The same position pays you if the market is fearful. Funding is a slow bleed or a quiet income, depending on which side of the crowd you stand.
Why derivatives are for the disciplined
Futures and perps add leverage, expiry, and funding on top of direction. They're powerful but punishing. Use them only after mastering spot, with small size, defined risk, and no emotional attachment to being right.
❓ Quick check
A perpetual contract differs from a futures contract because it:
A) Has an expiry
B) Has no expiry and uses a funding rate
C) Is always settled daily
D) Can't be shorted
Perps never expire; funding anchors them to spot.
(Knowledge check — full exam is next)
Key takeaways
Futures expire; perpetuals don't, and use funding to stay anchored
Shorting profits on the way down but has unlimited loss potential
Funding is a slow cost on the crowded side, income on the other
📝 Weekly Exam — pass with 80% to unlock next week
10 questions. Review the Deep Dive and courses before attempting.
1. A futures contract has:
Futures settle at expiry.
2. A perpetual's funding rate exists to:
Anchoring mechanism.
3. Short selling profits when the asset:
Short = profit on decline.
4. The maximum loss on a short is:
Short loss is theoretically unlimited.
5. When longs dominate, the funding rate is typically:
Crowded longs pay shorts.
6. High positive funding on a crowded long is effectively:
Funding bleeds the crowded side.
7. You short 1 BTC at $60k; it falls to $54k. Your profit is:
Sell 60k, buy back 54k = $6k.
8. Derivatives are best used:
Discipline first.
9. Perps dominate crypto trading because:
No expiry friction.
10. Funding rate transfers money from:
Crowded side pays.
Your score: —
🛠 Weekly Project
Track one perp's funding rate for a week.
1
Pick a popular perpetual (e.g., BTC-PERP) and note its current funding rate.
2
Record the funding rate every 8 hours for 3-4 days.
3
Compute the rough annualized cost if it stayed constant.
4
Write one sentence on which side of the crowd is paying.