Spot vs perpetual futures — which to choose

This lesson shows the difference between buying a cryptocurrency on spot and trading perpetual futures: what exactly you own, how much holding a position costs, and how to calculate the distance to liquidation before you click “open”. It is for someone who knows the market basics and wants to compare the two options with numbers, not with the impression an exchange interface gives.

What exactly you own on spot, and what you own on a perp

On spot you buy an asset and it becomes your property. A 30% decline hurts, but it does not trigger an automatic close — as long as you are not using loans or spot margin at a given operator. If you are, the deposit is usually posted in a stablecoin — adding issuer risk, described in Stablecoins and de-peg risk.

A perpetual (perp) is a contract with no expiry date. You get the result of price movement, packaged with three mechanisms spot lacks: leverage, the funding rate and liquidation when margin is insufficient. That is why holding a perp “like an investment” can be costly: you pay for time, not for direction.

A short table of the differences is also in spot vs perpetual. If this mechanics is new, start with Crypto without the myths, which describes the whole risk framework.

Funding rate: the cost of holding a position that runs around the clock

Funding is a periodic payment between longs and shorts that keeps the perp price close to spot. A positive rate usually means longs pay shorts, a negative one the reverse. The convention and settlement interval depend on the exchange, so check with your broker how fees are calculated in your market.

Formulas worth remembering:

notional = nominal value of the position (not the amount deposited)
own margin = notional / leverage
funding cost per day = notional x funding rate x settlements per day
cost as % of margin ≈ (funding per day as % of notional x number of days + 2 x fee) x leverage

The last formula matters most: the same cost in dollars, measured against margin, grows in proportion to leverage. An example with illustrative numbers:

Notional:       $10,000
Funding:       0.01% per 8 h, i.e. 3 settlements per day
Daily cost:    10,000 x 0.01% x 3 = $3, i.e. 0.03% of notional
30-day cost:   0.03% x 30 = 0.9% of notional = $90

Those $90 are a cost that does not depend on whether the price moved at all. With leverage it is not the amount that changes, but the base of comparison.

Distance to liquidation step by step

Liquidation is not a punishment for the wrong direction — it is the mechanical result of margin no longer being sufficient. Calculate its distance before you enter, in this order:

1. Set the notional and the leverage, then the own margin: margin = notional / leverage.
2. Check the maintenance margin and the margin mode in your market (isolated or cross). These figures depend on the exchange — check with your broker.
3. Calculate the approximate distance using the simplified formula:

   distance to liquidation (%) ≈ 100 / leverage − maintenance margin (%)

4. Compare it with the planned stop-loss. The distance to liquidation must be greater than the stop, otherwise liquidation comes first and your exit plan never executes.
5. Calculate the funding cost over the planned horizon and relate it to margin, not to notional.
6. Write all the numbers down before you enter. Once the position is open you stop being an analyst and become an observer of PnL.

The numbers are illustrative and the formula simplified — it ignores fees and margin-model details, so read the exact liquidation price from the exchange calculator. The conclusion stays the same: the higher the leverage, the smaller the buffer for ordinary volatility. At 20x a move of just under 5% wipes out the position — and such moves are an everyday occurrence in crypto. See also margin call and stop-loss.

Cost over the holding period: spot versus perpetual

A comparison only makes sense when costs are measured against the same horizon and notional. The general formula:

perp cost over period T = entry fee + exit fee + sum of funding payments
spot cost over period T = buy fee + sell fee + cost of withdrawing to self-custody (if you do it)

Example assumptions: notional $10,000, 30 days, funding 0.01% per 8 h, taker fee 0.05% per side. All numbers are illustrative.

The 10x row matters most in the entire lesson. Hold the position for a month and costs absorb around 10% of the capital you froze — with no price movement at all. Over a multi-month horizon the mechanism keeps working. Funding is sometimes negative, that is, paid to your benefit, but planning on that assumption means planning on a favourable scenario.

On spot the entry and exit cost is spread across two orders — more in round-trip cost. On a perp you also have spread and slippage, which on a thin market can exceed funding itself.

When spot, and when perpetual

There is no single better answer — only the question of what you intend to do with the position.

• A horizon of weeks or months, with no daily monitoring: spot. It eliminates liquidation and funding, at the cost of having no leverage.
• A short in a downtrend: only the contract market, because on spot without borrowing you have no way to take the opposite position.
• A quick intraday setup with a clear stop: a perp can be justified, but the distance to liquidation must be greater than the stop.
• Building a long-term position with top-ups: spot and self-custody. A perp in that role introduces a cost you do not control.

Write down in advance in which market a strategy makes sense. A trend-following approach on a higher timeframe suits spot, or very low leverage, better; a precise intraday setup may justify a perp, provided you size it as rigorously as on any other market. The same 1–2% risk per trade rule applies, and position size is converted through R-multiple. It is also worth comparing the equivalent cost in CFD instruments, where the counterpart of funding is swap.

When a perp says “do not trade”

1. You do not know the current funding or the settlement interval. Then you do not know what you are paying just to hold the position.
2. The distance to liquidation is smaller than the planned stop-loss. The stop will not trigger in time, so you do not control the exit.
3. You cannot point to what invalidates your thesis. No invalidation level means every move against you becomes a reason to wait it out.
4. You are holding an “investment” on a perp with no horizon and no cap on the funding cost. That is not a strategy, it is a position that decides for itself at the first larger move.

Typical mistakes when choosing a market

• Choosing a perp only to “avoid tying up” capital. Leverage changes the risk profile, not just capital convenience.
• Ignoring funding on positions held for weeks. The accumulated cost can exceed the profit from the price move.
• Treating the distance to liquidation as an abstraction. At high leverage, ordinary daily volatility is enough to close the position.
• Opening a perp with the same capital you manage on spot. Without separate risk budgets you cannot tell which part of the portfolio is responsible for which result.
• Holding a perp with no time limit. Every day of holding has a price, expressed in funding.

Exercise: a position card

On a demo account, open a perp with the same notional at two leverage levels and fill in the card for each variant. An empty field means a missing element of the plan.

Finally, add one sentence of conclusion: what happens to the safety buffer when leverage rises at a constant notional. The goal: two completed cards and one conclusion, with no position opened on real funds.

Common questions

What is the funding rate?

It is a periodic payment between longs and shorts that keeps the perp price close to spot. When one side of the market dominates, you may pay just to hold the position, even when the price is standing still. Check the settlement interval and the sign convention with your broker.

When should I even consider a perpetual?

When you can calculate position size and the distance to liquidation, and you have a written exit rule — exactly as with a stop-loss on other markets. A perp is sometimes the only way to hold a short, but it is not a substitute for cold storage, nor a way to hold exposure cheaply.

Can I lose everything on spot?

Yes — the price can fall very hard, and with a fraudulent token even to zero. The difference is mechanical: on spot there is usually no automatic liquidation, as long as you are not using loans or spot margin.

Why should I calculate the funding cost as a percentage of margin rather than notional?

Because margin is the capital you actually froze, and it determines your result. The same funding in dollars is 2% of margin per month at 2x, and already around 10% at 10x. Without converting to margin you will not see that two positions with an identical notional have a completely different cost of carry — and that number is what decides whether a strategy is worthwhile.