I'll tell you upfront that I'm about to walk us to finance hell and back, to explain an overcomplicated, profoundly risky asset class that you definitely don't need. Also, the name is weird: perps.
If there's a payoff for this column, it will come in any of three forms. First, you won't be tempted to trade these things, although you probably wouldn't be anyhow, so that's a little like me detailing the dangers of drinking carbonated beverages before deep-sea diving, while you're just trying to enjoy a seltzer in Omaha.
Second, there will be a specialized fact or two that you can lord over your investing frenemies in conversation -- practice marveling that they don't know about these things. Third, there will be a stock pick. If you want to bail out now, it's Intercontinental Exchange, which has sold off on fears of perp creep. That sounds even weirder, I know.
Scott from New Jersey, a listener of the Barron's Streetwise podcast, asks: "There's a term I've been hearing on TV called perpetual futures. Can you explain what they are, and how they relate to SpaceX?"
Thanks, Scott. Ahead of SpaceX's initial public stock offering in mid-June, some offshore trading platforms launched what are called perpetual futures contracts for traders wishing to speculate on SpaceX's price. These were for non-U.S. investors, but were watched by U.S. ones, creating a surge in curiosity around a financial instrument that until recently has been mostly confined to crypto.
To explain perpetual futures, or perps, let me touch on traditional futures, which are actually nothing like perps, and swaps, which are a closer comparison. These are derivatives, meaning that they derive their value from some underlying thing, like oil, gold, a currency, or interest rates.
A futures contract is an agreement to buy or sell a specific asset at an agreed upon time -- 1,000 barrels of Texas crude in September at a facility in Cushing, Okla., for example. If you're familiar with options, take out the optional part. Futures transactions must be completed at expiration, although speculators typically sell their contracts at a profit or loss before that happens. These contracts tend to be highly standardized, with liquid, exchange-based trading.
A swap contract, on the other hand, is an agreement between two parties to exchange future payment streams over a set time period -- for example, a fixed interest rate swapped for the Secured Overnight Financing Rate plus 1%, over the next five years. Swaps tend to be customized and less liquid than futures, trading over the counter.
Now perps. In an academic paper more than 30 years ago, Yale economist Robert Shiller proposed pricing rarely traded assets, like big office buildings, using perpetual derivatives that exchange their cash flows, such as rents. The tactic has proven to be a big hit among offshore crypto venues like Hyperliquid Strategies, which has recently been doing more than $11 billion in perps volume a day.
Cryptos typically have no cash flows to swap, so their perps instead rely on a funding mechanism that keeps the contract price from straying too far from the underlying crypto price. Each perp has a long and short side, with one trader betting for the underlying crypto and another against it. Every hour or several hours, the one who's losing must pay the one who's winning. Losses for the short side are theoretically unlimited.
What's that, you say? This sounds like the sort of thing that would be more fun with extreme leverage? Funny you mention it: Many perps venues allow traders to risk 10 to 40 times the money they put up. To help prevent bad debts, offshore perps platforms typically use automated liquidation when traders fall short of margin requirements, and if that fails, some can tap insurance pools that are funded by liquidation penalties, or simply haircut the winning side of trades.
Remember Sam Bankman-Fried? He's what you might call a perp-trader perpetrator. His FTX platform allowed traders to put up all manner of assets as collateral for perps bets. SBF himself made highly leveraged perps bets through his Alameda Research hedge fund, whose losses were exempt from FTX's auto-liquidation, and instead got covered by funds from its customer pool. SBF is currently serving federal time in Lompoc, Calif., with an expected release date of 2044.
There are now onshore perps venues, too. The Commodity Futures Trading Commission recently approved Bitcoin perps for Kalshi and Coinbase Global. More approvals seem likely, given an alt-finance-friendly regulatory climate. Among publicly traded companies, that could provide moneymaking opportunities for broker Robinhood Markets and market maker Virtu Financial.
In a recent report, J.P. Morgan writes that shares of Intercontinental Exchange hold particular appeal. ICE owns the New York Stock Exchange and, more to the point, is a powerhouse in regulated futures. Its shares are down 31% over the past year, in part due to concern about new competition from perps. JPM writes that perps may catch on with some U.S. retail traders but are unlikely to gain a following among institutional traders or hedgers, and that ICE likely has more to gain than lose. It trades at 15 times this year's projected earnings and has been growing earnings by double-digit percentages.
Back to SpaceX. It's publicly traded now, but there are other high-profile tech IPOs expected soon from the likes of OpenAI, Anthropic, and Databricks. There are also offshore perps to bet on these, but they're forbidden for U.S. investors, and trading venues use internet geoblocking to enforce this ban. If one of those investing frenemies gets all computery and starts explaining how a virtual private network can get around geoblocking, just say, "Thanks, Professor Darkweb, but I'd rather not risk having my account frozen."
You can always just hold out for these names to launch as onshore post-IPO perpetual future cash-flow participation units, otherwise known as stocks.
Write to Jack Hough at jack.hough@barrons.com and subscribe to his Barron's Streetwise podcast.
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July 02, 2026 01:30 ET (05:30 GMT)
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