Say you think Apple’s stock price is about to rise. Maybe you’ve read something about a strong new product launch and want to act on it.
There’s a way to do that without ever buying a single Apple share. Instead, you trade the price movement of Apple stock. If the price goes up, your trade gains value. If it goes down, your trade loses value. You never touch the share itself, but your result tracks it exactly as if you had.
That’s the whole idea behind what’s called a perpetual contract, or “perp” for short. You’re not trading the asset. You’re trading its price.
Why would you do it this way instead of just buying the share?
Because it opens up something plain ownership can’t. If you buy a share, you only make money if the price rises, that’s the only view you’re able to act on. However, with perpetual contracts you can profit from both the rise and fall of the stock. Think Apple is about to fall instead of rise? You can ride the downward trend and still make profit. Buying a share can’t do that for you. A perpetual contract can.
Now, the “perpetual” part
Most contracts like this, going back decades, came with a built-in end date. On that date, the contract closed automatically, whether you wanted it to or not, and if you wanted to keep your trade going, you had to open a brand new one to replace it.
A perpetual contract removes that end date entirely. Once you open a trade, it simply stays open, for a day, a week, a year, whatever it takes for your view to play out, and it closes only when you decide to close it. Nobody sets a deadline on your behalf.
Here’s what that actually looks like in practice. Say you open your Apple position on a Monday, expecting the price to rise over the next few weeks. With an ordinary contract, you might be forced to close it and reopen a fresh one before your view has even had time to play out. With a perpetual contract, none of that applies. You check back whenever you want, and the position is exactly where you left it, still open, still tracking Apple’s price, for as long as you choose to leave it there.
What you can hold a perpetual contract on
The Apple example above is one case, but the same idea works across a wide range of assets: individual companies, market indices, commodities like gold, and more. In every case, the mechanics are identical. You’re taking a position on where the price goes, not buying the thing itself, and that position stays open until you close it.
Could you explain it back?
If someone asked you right now what a perpetual contract is, here’s what you’d be able to say: it’s a way to trade on an asset’s price without owning the asset. It never expires on its own, so you decide when it closes rather than a deadline deciding for you.
That’s the whole concept. Everything else in this series- how you size a position, how you go long or short, how leverage and risk work, builds directly on top of this one idea.
Where to go next
The natural next question is how this actually compares to just buying and owning something the normal way, which is exactly what the next article in this series covers.
→ Next: Perps vs. Spot Trading