Are Crypto Perpetual Futures Halal?
Perpetual futures, often called “perps,” are crypto contracts that allow someone to gain from movements in the price of a cryptocurrency without owning the coin itself. These contracts never expire; a trader can keep the position open as long as there is enough margin in the account to support it. Although the structure sounds advanced, the idea becomes very easy to understand once we walk through it with simple numbers.
A perp works by letting a trader control a larger position than the amount of money placed as margin. The margin is the trader’s real stake. The exchange then creates a larger position size based on the leverage selected. All gains and losses are calculated on that larger exposure, even though the trader only deposited a smaller amount.
Example:
Margin: $100
Leverage: 10×
Position size created: $1,000
The trader still only has $100 at risk; the position simply behaves as if it were $1,000.
Once the position is open, the trader’s margin moves up or down depending on the price of the cryptocurrency. If the price rises, the margin increases. If the price falls, the margin decreases. When the margin becomes too small to support the position, the system closes it automatically. This automatic closure is known as liquidation. After liquidation, the trader simply loses the margin they had in the account.
Example:
If the price rises by 5%, the $1,000 position becomes $1,050
Gain: $50
Margin becomes: $150 ($100 + $50)
If the price falls by 5%, the position becomes $950
Loss: $50
Margin becomes: $50
If the price falls by 10%, the position becomes $900
Loss: $100
Margin becomes: $0
The position closes automatically.
Perpetual futures include a special mechanism called the funding rate. Because these contracts never expire, the exchange needs a way to keep the price of the perpetual contract close to the real price of the cryptocurrency. Without this, the perpetual price could drift too far above or below the true market price.
To solve this, the exchange uses small payments that move between long traders and short traders. These payments act like a balancing weight. When too many people are taking long positions, the perpetual price rises above the spot price. When this happens, long traders pay a small fee to short traders. This payment encourages more people to take short positions, which pushes the perpetual price back down toward the real price. When too many people take short positions, the opposite happens: short traders pay long traders, encouraging more longs and lifting the perpetual price back up.
The funding payment changes many times a day. A trader cannot know in advance whether they will pay or receive funding in the next period, because the payment depends on market pressure at that moment.
Example: Imagine Bitcoin’s real price is $100,000, but the perpetual price is $100,300. This means the perpetual contract is trading higher than the spot market because many traders are trying to go long. To pull the perpetual price back toward $100,000, the system sets a positive funding rate. This means long traders must pay a small fee.
If the funding rate for the next period is 0.01%, and a trader has a $1,000 position:
Funding payment = 0.01% of $1,000 = $0.10
This $0.10 is paid from long traders to short traders.
The purpose is not to punish anybody. It is simply to encourage more traders to take the opposite side (in this case, shorts). When more short traders enter the market, it helps push the perpetual price downward until it sits closer to the real Bitcoin price.
The exact same process happens in reverse when the perpetual price is lower than the real price. In that case, short traders pay long traders, and this encourages longs to enter the market and push the price back up.
This constant balancing mechanism is why the perpetual price usually stays close to the real spot price of Bitcoin or Ethereum, even though the contract itself never expires.
From a Shariah perspective, the issue is that a perp does not involve buying or selling an actual asset, nor does it create ownership of anything real. The entire arrangement is based on the movement of a price. One side’s gain is the other side’s loss. The funding payments also introduce uncertainty, because the trader does not know when they will pay or receive funding or how much it will be. In Shariah terms, this combines elements of maysir (gambling), because the result depends entirely on price movements, and gharar (excessive uncertainty), because the financial obligations inside the contract are uncertain.
When understood clearly, a perpetual future is simply a way of taking a position on price changes through a synthetic exposure rather than real ownership. The examples make it easy to see how the margin moves, how liquidation works, and why this structure does not meet Shariah standards.
