Module 1 · Foundation

Market structure & the instruments

Perpetual swaps, funding rates, basis, open interest, and who you're trading against.

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The two main instruments

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Perpetual swap (perp)

Expiry: None — holds indefinitely
Anchoring mechanism: Funding rate (every 8h)
Price vs spot: ≈ spot always
Market share: ~95% of volume
Primary use: Leverage + speculation

Dated future (quarterly)

Expiry: Fixed (Mar/Jun/Sep/Dec)
Anchoring mechanism: Basis decays to zero
Price vs spot: Trades at premium/discount
Market share: ~5% of volume
Primary use: Carry trades + hedging

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Recall

What keeps a perpetual swap's price anchored to spot?

Recall

Roughly what share of crypto-derivatives volume is perpetual swaps?

Funding rate mechanism

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The funding rate is the heartbeat of the perpetual swap. Since perps have no expiry, there is no natural convergence to spot. The funding rate is a synthetic mechanism that forces convergence every 8 hours.

When price trades above spot (too many longs): longs pay shorts → incentive to close longs → price pushed down. When price trades below spot (too many shorts): shorts pay longs → incentive to close shorts → price pushed up.

Funding = (Perp − Spot) / Spot × interval factor Paid: every 8 hours (3× per day) At 0.1%/8h = ~109% annualized cost to hold

Funding is a real, compounding cost. A leveraged long during 0.1%/8h funding on a $100,000 position costs $300/day — $109,500/year. Most retail traders never calculate this.

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Recall

When the perp trades ABOVE spot, who pays whom?

Open interest signal matrix

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OI ↑ + Price ↑

New longs entering with conviction. Trend is being driven by fresh capital. Bullish confirmation — strongest trend signal.

OI ↑ + Price ↓

New shorts entering with conviction. Bearish pressure backed by real money. Trend continuation likely.

OI ↓ + Price ↑

Short covering — shorts closing (forced buying). Rally has less conviction. Buying pressure fades when shorts are covered.

OI ↓ + Price ↓

Long liquidation cascade. Self-reinforcing: forced selling hits the order book → more liquidations. Watch for violent overshoot.

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Recall

Rising open interest with rising price signals…

Recall

Falling OI with falling price most likely indicates…