Crypto derivatives: perpetuals, funding rates and options
Contracts on a coin's price rather than the coin itself. This is where most crypto leverage lives.
Crypto derivatives are contracts that track a coin's price. Perpetual futures never expire; instead, traders pay each other a funding rate every few hours (longs pay shorts when the rate is positive) to keep the contract near the spot price. Options give the right, but not the obligation, to buy (call) or sell (put) at a set price by a set date. Both are usually traded with leverage, and losses can be fast.
What a derivative is
A derivative is a contract whose value comes from something else, here a coin's price. You can profit if the price goes up or down without owning the coin, and usually with leverage. Most crypto trading volume is in derivatives rather than in the coins themselves. The main kinds are futures (including perpetual futures) and options. Our crypto futures guide covers dated futures, CME contracts, margin and month codes; this page focuses on perpetuals, funding and options.
Perpetual futures
A perpetual future ("perp") is a futures contract with no expiry date. You open a long or short position with some margin, and you can hold it as long as your margin covers your losses. Without an expiry to pull the contract's price back to the coin's price, perps use a different mechanism: the funding rate.
How funding rates work
At set times, traders on one side of a perp pay traders on the other side. When the perp trades above the spot price (because more traders want to be long), the funding rate is positive and longs pay shorts. When it trades below, the rate is negative and shorts pay longs. The payment nudges the contract back toward spot: being long gets more expensive exactly when it's crowded. The exchange doesn't keep these payments; they pass between traders.
Binance, for example, settles funding every 8 hours (00:00, 08:00 and 16:00 UTC by default) and publishes its formula:
Funding rate = average premium index + clamp(interest rate − premium index, −0.05%, +0.05%)
The interest rate is fixed at 0.01% per 8 hours, so when the perp trades close to spot the funding rate settles at about +0.01%. The payment is your position's value times the rate, and only positions open at the funding time pay or receive it.
Worked example: a $10,000 long position at +0.01% funding pays $1.00 each 8 hours, $3.00 a day. Held for a year at that rate, that's $1,095, about 10.9% of the position, a cost that a price chart doesn't show. In excited markets funding can run many times higher. Exchanges can change the interval and caps, so check your exchange's own rules.
Traders watch aggregate funding rates and open interest (the total value of open contracts) as signs of how crowded and leveraged the market is. Heavy leverage on one side makes cascades more likely: on October 10, 2025, about $19 billion of leveraged crypto positions were liquidated in a single day. You can see what leverage does to one position with the leverage calculator and the liquidation price calculator.
Options basics
- A call option gives the buyer the right, not the obligation, to buy at a set price (the strike) on or before a date (the expiry). It pays off if the price ends above the strike.
- A put option gives the right to sell at the strike. It pays off if the price ends below the strike, which is why puts are used as insurance against a fall.
- The buyer pays a premium up front. The seller (writer) keeps it, but takes on the obligation.
Premiums rise with time to expiry and with expected volatility (implied volatility). Crypto options are expensive by stock-market standards because crypto prices swing more. Most crypto options on offshore platforms are European-style (exercisable only at expiry) and cash-settled.
Where they trade: Deribit has long been the largest crypto options exchange. In the US, CME lists options on its bitcoin and ether futures, and options on spot Bitcoin ETFs began with BlackRock's IBIT on Nasdaq on November 19, 2024, where 353,716 contracts traded on the first day.
The risks, plainly
- Leverage means a small price move can wipe out your margin, and liquidation can happen in minutes.
- Funding costs add up on positions held for days or weeks.
- Selling options can lose far more than the premium collected.
- Many platforms offering perpetuals and high leverage are offshore and don't serve US customers; if one fails, customers may get little back.
- Studies of retail trading consistently find most active traders lose money. See day trading crypto.
Related reading: Crypto regulation in the United States
Frequently asked questions
What is a funding rate in crypto?
A periodic payment between traders of a perpetual futures contract. When the rate is positive, longs pay shorts; when negative, shorts pay longs. It keeps the contract's price close to the coin's spot price.
How often is funding paid?
It depends on the exchange and contract. Binance's default is every 8 hours, at 00:00, 08:00 and 16:00 UTC, and it can shorten the interval in volatile markets.
What does a high funding rate mean?
That many traders are paying to stay long, a sign of crowded, leveraged bullish positioning. It doesn't predict the next move, but crowded positions can unwind sharply.
What is the difference between futures and options?
A futures contract obliges both sides to settle at the agreed price, so gains and losses are open-ended. An option gives the buyer a right but not an obligation; the buyer's loss is capped at the premium, while the seller's isn't.
Can I trade bitcoin options in the US?
Yes, through regulated venues: options on CME bitcoin futures through futures brokers, and options on spot Bitcoin ETFs such as IBIT through many stock brokerages, subject to your broker's options approval.
Where to next
Sources
- Introduction to Binance Futures funding rates (Binance)
- Nasdaq-listed IBIT options end first day in top 1% of all options products (Nasdaq, November 2024)
- CME Group to launch options on Bitcoin Friday futures (CME Group, January 29, 2025)
- Options (FINRA)
- Crypto market sees $19.15B liquidation event on October 10, 2025 (KuCoin News)
Written for beginners and checked against the sources listed. Last reviewed November 5, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.