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What is perp trading and leverage?
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In Brief
Learn how perpetual futures work in crypto, what leverage means, and the risks of liquidation when trading with borrowed funds.
Key Takeaways:
Perpetual futures enable you to speculate on crypto prices without owning the asset. Perpetual futures have no expiration date.
Leverage multiplies your buying power but also multiplies your risk. A small price movement against your position can lead to liquidation and total loss of your margin.
Long positions profit when prices rise, while short positions profit when prices fall. Both positions carry risks when combined with leverage.
Perpetual (perp) futures trading is a popular way to trade cryptocurrency. Perp trading enables you to speculate on price movements without owning the underlying asset. When you add leverage to the mix, you can control positions far larger than your account balance would normally allow. The combination of perp trading and leverage creates opportunities for substantial gains, but it also exposes you to serious risks that can wipe out your capital in minutes. Understanding how perpetual futures work, what leverage means, and how to manage the risk of liquidation before you start trading is important.
Understanding Perpetual Futures
Perpetual futures are derivative contracts that let you speculate on the price of cryptocurrencies like Bitcoin or Ethereum without buying the coins. The difference between perpetual futures and traditional futures is that perpetual contracts don’t expire. You can hold your position for as long as you want, provided you maintain enough margin in your account.
Traditional futures contracts come with set expiration dates. You must either close your position or roll it over to a new contract when the deadline arrives. Perpetual futures give you complete control over when you enter and exit your trades. Perpetuals’ flexibility makes them particularly attractive for traders who want to hold positions based on longer-term price predictions or who don't want to deal with the complexity of contract rollovers.
To keep perpetual futures prices aligned with the actual spot market price of the underlying asset, exchanges use a funding rate mechanism. The funding rate is a small periodic payment that flows between traders on opposite sides of the market. When perpetual futures prices trade higher than the spot price, traders holding long positions pay funding fees to traders holding short positions. When perpetual futures trade below the spot price, the payment flows in the opposite direction. The funding rate mechanism incentivizes market balance and prevents the futures price from drifting too far from reality.
Long and Short Positions Explained
When you trade perpetual futures, you're making a directional bet on price movement. A long position means you're betting that the price will rise. You enter the market expecting to profit when the asset appreciates. A short position works in the opposite direction. When you go short, you're betting that the price will fall. With perpetual futures, you open a short contract that gains value as the underlying asset's price drops.
The profit potential differs between these two approaches. Long positions have theoretically unlimited upside because there's no cap on how high an asset's price can climb. Short positions have limited profit potential because prices can only fall to zero. Short positions carry unlimited loss potential if the price rises unexpectedly.
What Leverage Means in Crypto Trading
Leverage is what separates perpetual futures from spot trading. When you use leverage, you're controlling a position size that's larger than your actual account balance. The leverage ratio tells you how much your position is magnified — 10x leverage means you can control a position worth ten times your capital.
If you have $1,000 and use 10x leverage, you can open a position worth $10,000. Your $1,000 serves as margin, which is the collateral that backs your leveraged position. The magnification works both ways. Your potential gains and your potential losses are amplified.
Many perpetual futures platforms offer leverage ranging from 2x up to 100x or even higher. High leverage might seem attractive because it enables you to control massive positions with minimal capital, but it also increases your risk. A position with 5x leverage multiplies your profit potential, and it multiplies the speed and magnitude of your losses. A 20% adverse price movement on a 5x leveraged position can eliminate your margin.
The Risks of Leverage and Liquidation
Liquidation is the most critical risk you face when trading with leverage. Liquidation happens when your margin balance falls below the minimum amount the exchange requires to keep your position open. When the threshold is breached, the exchange automatically closes your position to prevent further losses.
The amount of price movement needed to trigger liquidation depends on your leverage. Higher leverage means less room for price movement before liquidation occurs. With 20x leverage, a 5% price move against your position could trigger liquidation and wipe out your entire margin. With 2x leverage, the price would need to move 50% against you to reach the same outcome.
Cryptocurrency markets can be volatile. Prices swing dramatically in moments. Volatility can trigger liquidations within minutes, especially during periods of heightened market turbulence.
You also need to account for funding rate costs. You pay or receive small fees periodically, usually every eight hours. If you hold a leveraged position for days or weeks, these funding fees accumulate and can eat into your profitability.
Be realistic about your experience level. If you're still learning the basics of crypto markets or getting comfortable with spot trading, jumping into leveraged perpetual futures can be risky. Learn how to manage risk properly, and only move to leveraged products once you have a solid foundation.
Trading Futures in Trust Wallet
Trust Wallet gives you access to perpetual trading through its integration with decentralized exchanges. You maintain full control of your private keys while trading.
Start by downloading the Trust Wallet app from the official Trust Wallet website. Create a new wallet. Make sure you back up your recovery phrase. Never share your recovery phrase with anyone.
You'll need to fund your wallet with cryptocurrency. Most perpetual trading platforms require stablecoins as collateral. You can buy crypto directly in Trust Wallet through trusted partners.
Getting started with perps on Trust Wallet
To get started with perps in Trust Wallet, simply select “Swap” in the bottom menu, then select “Perps”. Next, you’ll need to deposit funds and then open a position.
1. Deposit funds
Before opening a long or short position, deposit funds into your Perpetual account. These funds act as your margin — the collateral that supports your open positions and absorbs potential losses.
Select Swap, then choose the Perps tab.
If it’s your first time using the feature, you’ll need to “Enable trading”, and complete that quick process.
Next, deposit funds to be used as collateral. Select “Deposit”, choose the chain, asset, and amount.
2. Open a position
Next you’ll choose whether you want to go long (Buy/Long) or go short (Sell/Short), then set up your trade.
Select the Buy or Sell button.
Choose whether you want to open the position as a Market or Limit order. Then choose your leverage, position size, and adjust the other settings to your liking.
Once you’re satisfied with your trade setup, confirm and place your trade.
Note: Perpetuals are not available to users in the United Kingdom or the United States.
Building Your Approach to Leveraged Trading
Perp trading requires discipline, realistic expectations, and robust risk management. Before committing a large amount of capital to leveraged perpetual futures, take time to understand how funding rates affect your positions, how margin requirements change as markets move, and how quickly liquidation can occur with different leverage levels.
Trust Wallet now supports perpetual futures trading directly within the app, giving you access to futures markets while maintaining full control of your assets through self-custodial security.
Disclaimer: Perpetuals trading lets you take long or short positions with leverage, but it also carries higher risk due to market volatility. Please trade responsibly and only with funds you can afford to lose.
Access to Perpetuals is available only in supported regions, and is not available to users in the United States or the United Kingdom, and may be restricted in other jurisdictions.
Always DYOR. Enabled by third-party decentralized protocols (such as Aster), with Trust Wallet providing a non-custodial interface for access. Content is for informational purposes and not investment advice. Web3 and crypto come with risk. Please do your own research with respect to interacting with any Web3 applications or crypto assets. View our terms of service.
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Note: Any cited numbers, figures, or illustrations are reported at the time of writing, and are subject to change.