How Does the Pricing Mechanism of a Perpetual Swap Differ from a Traditional Futures Contract?

A perpetual swap differs from a traditional futures contract primarily because it has no expiration date. To keep the perpetual swap's price pegged to the underlying spot price, it uses a mechanism called the "funding rate." The funding rate is a small, periodic payment exchanged between long and short position holders.

If the swap price is higher than the spot price, longs pay shorts, and vice versa. Traditional futures contracts, however, converge to the spot price upon a fixed expiration date and do not use a funding rate.