Perpetual Futures

Perpetual futures contracts are derivatives instruments that provide continuous exposure to an underlying asset without explicit expiration dates. These contracts maintain price alignment with the spot market through a funding rate mechanism.

The funding rate facilitates price convergence between perpetual futures and spot markets by transferring payments between long and short position holders at regular intervals, typically every 8 hours, based on the magnitude divergence from the underlying spot price and a prevailing interest rate. When perpetual futures trade at a premium to spot, long positions pay shorts. Conversely, when perpetual futures trade at a discount, short positions pay longs.

Cube's perpetual futures trade on a central limit order book, which is a transparent system that matches orders based on their 'price time priority'. The highest bid (buy order) and lowest ask (offer or sell order) constitute the best market for a given contract, ensuring transparent and efficient execution. This best bid-ask spread is a component of funding rate determination.

Trading perpetual futures requires a Margin-enabled subaccount with sufficient collateral. Currently, all Cube perpetuals are denominated in and collateralized with USDC. Each contract specifies margin requirements for opening and maintaining positions and open orders. Subaccounts that breach maintenance margin requirements are subject to liquidation.

Position maintenance costs fluctuate based on market conditions, as funding rates reflect the relative demand for long versus short exposure. During periods of strong directional sentiment, funding rates can impose significant holding costs on positions aligned with the prevailing market bias.