Perpetual Settlement Mechanics
Learn how perpetual futures P&L, margin, funding and realised settlement are accounted without a fixed contract expiry.
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Perpetual futures do not settle by reaching a scheduled maturity. Instead, positions remain open until they are closed, liquidated, reduced or otherwise terminated under venue rules, while P&L, funding and margin are continuously or periodically accounted.
Core concept
A perpetual position has an entry price, size, settlement currency and ongoing mark-to-market. Unrealised P&L changes with the venue's risk price. When a trader closes some or all of the position, that portion's P&L becomes realised according to the contract formula.
Linear contracts often express P&L in a stable settlement asset using price difference multiplied by contract quantity. Inverse contracts can express P&L in the underlying cryptoasset and use reciprocal-price formulas. Contract multipliers vary.
Funding is settled at defined intervals, while trading fees are charged on executions. These cash flows alter account equity and therefore can affect available margin and liquidation distance.
How the mechanics fit together
Unrealised P&L
Mark-to-market change on open exposure.
Realised P&L
Locked-in result when exposure is closed/reduced under contract rules.
Funding settlement
Periodic account transfer tied to open position eligibility.
Fee settlement
Execution fees/rebates charged when trades occur.
Margin transfer
Collateral added or removed subject to risk rules.
Liquidation/ADL
Forced risk-reduction mechanisms if account equity becomes insufficient.
Comparison framework
| Cash-flow event | Typical trigger | Effect on account | Venue-specific? |
|---|---|---|---|
| Trade fee | Open/close execution | Reduces/increases balance if rebate | Yes |
| Funding | Funding timestamp | Transfer between sides | Yes |
| Realised P&L | Closing/reducing position | Moves P&L into realised balance | Yes |
| Liquidation fee | Forced close process | Additional loss/cost | Yes |
Worked example
A linear ETH perpetual is bought at £2,000 for 5 ETH notional quantity and later 2 ETH are sold at £2,100. Ignoring fees and funding, the realised P&L on the closed 2 ETH is about £200: (2,100 − 2,000) × 2. The remaining 3 ETH stays open and continues to generate unrealised P&L and funding exposure. If £18 of funding and £12 of trading fees were paid over the full lifecycle, those cash flows must be included separately rather than hidden inside the price-only P&L.
Risk map
Settlement-currency risk
Inverse or crypto-margined structures make collateral/P&L value move with the asset.
Partial-close accounting
A trader can misread realised vs unrealised results after scaling.
Fee/funding leakage
Gross directional P&L can overstate net account performance.
Delisting/termination
Venue rules can specify extraordinary settlement if a contract is discontinued.
Common mistakes and misunderstandings
- Thinking 'perpetual' means there is no settlement at all.
- Ignoring whether the contract is linear or inverse.
- Comparing P&L across venues without checking contract multiplier and settlement asset.
- Treating unrealised P&L as cash available without margin consequences.
- Forgetting funding and liquidation fees when reconstructing a trade.
Practical analysis workflow
- Identify linear/inverse structure, multiplier and settlement currency.
- Track opening quantity and weighted entry price.
- Separate unrealised P&L, realised P&L, funding and fees.
- Recalculate exposure after every partial close or add.
- Read delisting, liquidation and extraordinary-settlement rules before relying on indefinite holding.
Knowledge checkpoint
These questions are specific to Perpetual Settlement Mechanics.
Q1. Why can a perpetual have ongoing settlement mechanics even though it has no expiry?
Q2. How much price-only P&L is realised when 2 ETH bought at £2,000 are sold at £2,100?
Q3. Why can inverse-contract P&L behave differently in money terms from linear-contract P&L?
Q4. Which cash flows would you reconcile to explain the difference between gross trade P&L and account balance change?
FAQ
❓ When does a perpetual settle?
There is no scheduled final expiry settlement, but P&L, fees and funding are accounted throughout the position lifecycle.
❓ What is linear settlement?
A structure where P&L is commonly expressed in a quote or stable settlement asset using a linear price-difference formula.
❓ What is inverse settlement?
A contract design where value/P&L can be denominated in the underlying asset and the formula uses inverse price relationships.
❓ Can a venue force settlement?
Yes. Liquidation, delisting or extraordinary contract rules can close or settle positions.
Summary
- Perpetuals remain open without a scheduled maturity but still have continuous accounting.
- Realised P&L, unrealised P&L, funding and fees are distinct cash-flow concepts.
- Linear and inverse contracts require different P&L formulas and settlement interpretation.
- Venue termination and liquidation rules limit the idea of 'holding forever'.
This building block is educational. It explains market structure and risk; it is not a recommendation to use derivatives or leverage.
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