# What are perpetuals 101 ### What Are Perpetuals? Most people know two ways to get exposure to an asset: buy it on the spot market, or trade a futures contract. Perpetuals are a third option — and for active traders, often the most flexible one. Spot trading — you buy and own the asset directly. Simple, but your upside is limited to your capital. Futures — you trade a contract that expires on a set date. When it expires, the contract settles and your position closes. Perpetuals — like futures, but with no expiry date. You can hold a position for as long as you want, and close whenever you choose. On Aqua, all perpetual contracts settle in USDC and run on Hyperliquid's on-chain order book. You never hold the underlying asset — but you get full price exposure, with up to 40x leverage. ### How Perpetuals Work Trading a perpetual on Aqua follows a simple flow: 1\. Deposit USDC as collateral 2\. Choose a direction — Long if you expect the price to rise, Short if you expect it to fall 3\. Set your size and leverage — this determines your total position exposure 4\. Your PnL moves with the asset price, multiplied by your position size 5\. Close whenever you want — there's no expiry forcing you out *You never buy or sell the underlying asset. You're trading a contract that tracks its price.* #### Going Long You open a long position when you believe the price will go up. Your profit equals the price increase multiplied by your position size. If the price falls instead, you take a loss. #### Going Short You open a short position when you believe the price will go down. Your profit equals the price decrease multiplied by your position size. If the price rises instead, you take a loss. #### PnL Formula Long PnL = (Exit Price − Entry Price) × Position Size Short PnL = (Entry Price − Exit Price) × Position Size PnL is unrealized while your position is open, and becomes realized when you close. ### Leverage Leverage lets you control a position larger than your deposited collateral. On Aqua, you can trade with up to 40x leverage depending on the asset. *Leverage amplifies both your gains and your losses by the same factor. It does not change the probability of the market moving in your favor.* ### How It Works With 10x leverage and $100 collateral, you control a $1,000 position. If the price moves +5% in your favor: you gain $50 — a 50% return on your $100 collateral If the price moves −5% against you: you lose $50 — 50% of your collateral gone The leverage multiplier works symmetrically. A 10x leveraged position reacts to price moves 10x harder than a spot position of the same collateral size. ### Higher Leverage = Closer Liquidation The higher your leverage, the smaller the price move required to wipe out your collateral: • 2x leverage: \~50% price move to liquidation • 5x leverage: \~20% price move to liquidation • 10x leverage: \~10% price move to liquidation • 20x leverage: \~5% price move to liquidation • 40x leverage: \~2.5% price move to liquidation *Start with lower leverage until you understand how your position reacts to market moves. Higher leverage leaves very little room for error.* ### Funding Rate Since perpetual contracts never expire, there's no natural mechanism to keep the contract price aligned with the actual spot price. The funding rate solves this. #### What Is the Funding Rate? The funding rate is a periodic payment exchanged between long and short traders. It nudges the perpetual price toward the spot price by making one side more expensive to hold. When funding is positive (perp price > spot price): • Longs pay shorts • Signals bullish market sentiment • If you're long, you pay funding — it costs more to hold • If you're short, you receive funding — you're paid to hold When funding is negative (perp price < spot price): • Shorts pay longs • Signals bearish market sentiment • If you're short, you pay funding • If you're long, you receive funding ### How It Affects You On Hyperliquid, funding is settled hourly. You can see the current funding rate on the trading page before opening a position. • Funding is applied to your position size, not just your collateral • Holding positions overnight means funding payments accumulate • In highly directional markets, funding rates can spike significantly • Check the funding rate before entering any position you plan to hold for more than a few hours *Funding rate is one of the hidden costs of holding leveraged positions. Always factor it in alongside trading fees when sizing your trade.* ### Liquidation Liquidation happens when your losses consume enough of your collateral that the exchange can no longer guarantee your position. The system closes it automatically to prevent your balance from going negative. *Liquidation typically means losing most or all of the collateral in that position. Understanding how it works — and how to avoid it — is essential before trading with leverage.* ### What Triggers Liquidation? Every position has a liquidation price — the price level at which your remaining margin falls below the maintenance margin required to keep the position open. When the mark price hits this level, your position is closed automatically. Example: BTC long at 10x leverage with $100 collateral • Entry price: $100,000 • Position size: $1,000 • Approximate liquidation price: \~$90,000 (a 10% move against you) • Loss at liquidation: \~$100 — most or all of your collateral ### How to Reduce Liquidation Risk • Use lower leverage — the single most effective way to widen your liquidation distance • Add margin to an open position to push your liquidation price further away • Set stop-losses to exit before the liquidation price is reached • Avoid putting all your collateral into a single position • Monitor positions closely during high-volatility periods *On Aqua, your liquidation price is shown on the position page in real time. You'll also receive alerts as your position approaches risk levels.* ### Key Terms A quick reference for the terms you'll encounter while trading on Aqua. #### Mark Price The price used to calculate your unrealized PnL and determine liquidation. Based on the index price with a small adjustment — not just the last trade price. #### Entry Price The average price at which you opened your position. #### Liquidation Price The price at which your position will be automatically closed due to insufficient margin. #### Unrealized PnL Your current profit or loss on an open position. It becomes realized when you close. #### Realized PnL Profit or loss that has been settled after closing a position. #### Margin Collateral you deposit to open and maintain a leveraged position. #### Maintenance Margin The minimum margin required to keep a position open. Falling below this level triggers liquidation. #### Leverage The multiplier applied to your collateral to determine your total position size. #### Funding Rate A periodic payment exchanged between longs and shorts to keep the perpetual price aligned with the spot price. #### Long A position that profits when the asset price rises. #### Short A position that profits when the asset price falls. #### Position Size The total notional value of your trade — collateral multiplied by leverage. ### Perpetuals vs Traditional Margin Trading If you're coming from stock trading with margin, perpetual futures will feel familiar in some ways — but different in others. Here's a direct comparison.
Traditional MarginPerpetuals (Aqua)
What you holdActual shares of stockA contract tracking the asset price
OwnershipYou own the asset — dividends, voting rightsNo ownership — pure price exposure
SettlementT+1 or T+2 (1–2 business days)Instant, on-chain
Trading hoursMarket hours only (e.g. 9:30am–4pm ET)24/7/365, no breaks
Maximum leverageTypically 2x (Reg T); 4x for day tradersUp to 40x
Holding costMargin interest — typically 8–12% annuallyFunding rate — variable, paid hourly
Can earn from costNo — you always pay interestYes — funding can be positive or negative
Short sellingRequires borrowing shares; borrow fees applyNative — no borrowing needed, instant
Short availabilitySome stocks hard or impossible to shortAny listed market, always available
Margin callYes — broker contacts you to deposit moreNo call — position auto-liquidates
Liquidation speedBroker manually sells your positionAutomatic and immediate
ExpirationN/A — you own the shares indefinitelyNone — hold as long as you want
The biggest practical differences: perpetuals run 24/7, let you short anything instantly, and replace annual interest with an hourly funding rate that can go either way. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://aqua-9.gitbook.io/aqua-docs/getting-started/what-are-perpetuals-101.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.