Perpetual versus spot

Checked October 2026

A perpetual is a futures contract with no expiry, and the trade is long the coin and short that perpetual so the price move cancels. He, Manela, Ross and von Wachter wrote the relationship up in 2022. Backtoast could not run it, because it needs a long and a short at the same time.

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Perpetual versus spot

What's left once the price move cancels is the gap between the two prices and the funding payment between them. The rule checks it every hour, opens the hedge when that gap is bigger than the round-trip fees, and closes both legs when it crosses back to zero.

Backtoast holds one position per symbol, so it can't hold the short perpetual and the long coin as one hedged trade, and either leg alone is a bet on bitcoin's price.

Bitcoin cash and carry holds the same hedge for a year and collects the funding, with no signal.

When it works

The gap opens widest when demand for leverage runs high, most often in fast bull markets, when traders pay up to be long the perpetual. The paper found the gaps larger than in currency markets and shrinking over time as crypto markets matured. Traders run it for a return that doesn't depend on bitcoin's direction, and it works best at the lowest fees.

Origins

He, Manela, Ross and von Wachter's Fundamentals of Perpetual Futures, revised in 2026, ran it on bitcoin from January 2020 to March 2024 and reported a Sharpe ratio of 3.35 at retail fees and 11.65 with no fees.

Backtoast did not run this one.