perps 101 perps are 90%+ of crypto volume today, they run the market. critical to understand, but most people working in crypto don't actually understand how they work. did a few sessions this week internally breaking them down. here's the tldr - not a guide, just my stream of consciousness notes. start with order books - they're universal, not specific to perps. bids = buy orders, asks = sell orders. difference between best ask and best bid is the "spread" there is no true singular "price" of an asset. it's just the midpoint of the spread. on coingecko or cmc, they take the avg across many exchanges. makers add to the book, takers grab what's there and move price. exchanges want bigger books, fees incentivize this: maker fees are lower, taker fees are higher. post-only orders are a way to guarantee you're making not taking. market orders walk the book. your average fill is always worse than top of book. snap buy then snap sell = guaranteed loss equal to spread plus fees. stops and takes: take profit is just a limit order resting on the book. stops are usually triggers held off-book by the exchange. mature exchanges fire stop losses cleanly. newer ones don't, so set alerts for your stop losses. forwards = agreement to buy or sell an asset for a price on a date in the future. requires actual delivery of the asset. futures = forwards with 1) standardized contracts so there's better liquidity 2) margin is required 3) marked to market daily. futures enable leverage. futures converge to spot at expiration. if the price of the future > price of underlying, arbitrageurs come in. they can do this because price converges at expiration. liquidations happen when margin is close to zero. your position is closed by opening an opposite direction market order. ex: ETH long gets liquidated = exchanges opens a market short on your behalf. this pushes price down further. might trigger more liquidations, which open more market shorts, pushes price further. that's a liquidation cascade. in the other direction, called a short squeeze. people like leverage from futures. but they want positions open for a long period of time, no expiration. enter perps: futures with no expiration. but expiration is the anchor that keeps future prices tied to spot - without it, perp price will diverge from underlying with no tether. wat do? funding rates. if perp > spot, longs pay shorts. if perp < spot, shorts pay longs. arb-ers close the gap. funding payments happen every 8 hrs or 1 hr depending on the exchange. perps are always on. you can hold exposure indefinitely. just watch that your funding payments aren't eating into your returns. funding is often positive (longs pay shorts) bc crypto people are hungry for levered longs. this creates a "cash and carry" arb: long spot, short the same asset perp. rake funding payments. this is what Ethena does. typically collateral is USDC. with the cash and carry arb, there's a possibility of liquidation if prices move against you. some venues let you use crypto as margin. better cash and carry: long ETH spot, use ETH spot as collateral to short a perp. ETH price increases, you need more margin for your short, but your collateral increased in price. chillin. with onchain perps, everyone's liquidation points are known. creates a pvp book. treat it as adversarial by default. perps collapse everything a trader wants into 1 instrument: leverage, simple, 24/7, no borrow friction, marked-to-market. BitMEX introduced the first perp in 2016. trade BTC on leverage. s/o Arthur Hayes. today, they're the center of the market