Differences from Standard Futures
Standard futures converge to spot at expiry. Perpetuals have no expiry, so the funding rate is introduced as the convergence mechanism. In principle, a position can be held indefinitely; in practice, forced liquidation will close it once collateral falls below required thresholds. Perps come in two collateral types: USDT-margined (linear) and coin-margined (inverse), and the choice affects how P&L is denominated.
Mark Price vs. Last Price
Liquidations on perpetuals are typically computed against the 'mark price' (a fair-value measure) rather than the last traded price. Mark price is built from a composite spot index across exchanges plus unrealized funding adjustments, designed to suppress liquidation cascades caused by transient single-venue dislocations. Trade execution and P&L still use the last price, so during periods of mark-versus-last divergence, unexpected slippage can occur.
Perpetuals as a Risk Factor
High-leverage perpetuals concentrate liquidation risk and produce periodic flash crashes from cascading forced liquidations. During the May 2021 and May 2022 crypto sell-offs, perpetual liquidations exceeded USD 10 billion in a single day on multiple occasions. While this presents opportunity for short-term traders, longer-horizon strategies should keep leverage modest (around 1-2x) or maintain a 30-50% buffer above the mark-price liquidation threshold.