Quant Trading Academy, Module 2, Part 4

Perpetual futures are the main crypto trading instrument behind Quant's signals on Hyperliquid. These mechanics affect liquidations, hidden costs, and position management.

How Perps Differ From Spot and Dated Futures

Spot means you buy and own the asset. There is no expiry, funding, or built in leverage.

Dated futures settle on a future date. Their price converges toward spot as expiry approaches, so traders who want continuous exposure must roll into the next contract, adding cost.

Perpetual futures remove expiry, so positions can be held indefinitely. Without expiry, funding keeps price near spot.

The Funding Rate Mechanism

If the perp trades above spot, longs pay shorts. If it trades below spot, shorts pay longs. Funding is charged on position size, not margin. Most exchanges settle every eight hours. Hyperliquid settles hourly, so cost or yield builds faster.

Funding can help you: shorts collect during strongly positive funding, longs during strongly negative funding. It can also hurt you: a long held through sustained positive funding pays recurring cost, sometimes at extreme annualised levels. Before holding any trade for more than a few hours, check what funding will cost or pay. A setup can be +EV on price yet have its total payoff changed by funding, especially lower win rate, higher reward trades that need time.

Mark Price vs. Last Price

Last price is the most recent trade, the chart price and your fill price.

Mark price is a reference derived from spot markets and a funding premium. On Hyperliquid it comes from an oracle median of spot prices, not its own order book.

Liquidations use mark price, not last price. That protects against thin book manipulation, but it also means the chart can look safe while mark price is close enough to liquidate you. Divergence is most common during fast volatility and thin liquidity, so your liquidation buffer must account for temporary mark price moves.

Insurance Funds and Socialised Losses

If a liquidated position cannot be closed at a price that fully covers its debt, the insurance fund absorbs the deficit. The fund is built from liquidation surpluses, when positions close better than the bankruptcy price.

If the fund is depleted, exchanges use auto deleveraging, or ADL, also called socialised loss. Profitable positions on the other side are partially closed to cover the shortfall. If you are short and deeply in profit during a crash, ADL can still close part of your position.

Insurance fund size matters. Hyperliquid's fund is publicly visible, and a larger fund gives more protection before ADL. ADL risk is highest during extreme, directional, high leverage events. You cannot remove that risk, but you can reduce exposure with modest sizing and by avoiding oversized leverage through high risk events.

Putting It Together: What This Means for Your Quant Setups

Funding changes the cost or yield of holding the trade. Mark price determines liquidation risk. Insurance funds and ADL are exchange mechanics. You cannot control them, only your leverage, size, and awareness of structural risk.

None of this changes the quality of a Quant signal. It changes the context in which you execute it. The signal shows where the edge is. Understanding the instrument helps keep you in the trade long enough for that edge to play out.

Key Takeaways

Perps have no expiry, so funding keeps them anchored to spot.
Funding can help or hurt you, and on Hyperliquid it settles hourly.
Liquidations happen on mark price, not last price.
Insurance funds absorb deficits. If they run out, ADL can close profitable positions on the other side.
These mechanics do not change the signal. They determine whether you can execute it responsibly.