Synonyms: Perpetual Future
A perpetual swap is a derivative that is popular with crypto traders. It allows market participants to replicate the payoffs from a spot position (i.e. buying the cryptocurrency outright), but without needing to purchase the crypto itself. It is similar to a contract-for-difference in equity markets. The two big advantages it offers are a) capital efficiency – the investor needs to put less money down than buying the position outright b) allows participants to easily go short.
The way the swap works is that those long the swap make a periodic payment to those short the swap (or vice-versa). The period is typically 8 hours, and the size of the payment (called the funding fee) is proportional to the difference between the price of the perpetual swap and the underlying spot instrument (and of course the position held). This is done to anchor the price of the perpetual swap to the underlying spot instrument.