Perpetual futures unlikely to disrupt traditional commodity markets, analysis finds

The paper, published this week by University of Houston finance professor Craig Pirrong, argues that while perpetual futures have expanded rapidly beyond their origins in cryptocurrency markets and are beginning to gain traction in commodities such as crude oil, their design limits their usefulness for the producers, merchants, swap dealers and institutional investors that underpin traditional commodity futures markets.

"Perpetual futures are tailored to a specific clientele, small 'retail' traders who account for a relatively small share of traditional exchange volumes," Pirrong wrote in the study, adding that while the products may divert some retail activity from incumbent exchanges, they could also attract new market participants who would not otherwise trade futures.

The analysis includes an assessment of US commitment of trader reports published by the US Commodity Futures Trading Commission (CFTC), showing that for the six major commodity futures contracts only 5% of long positions are held by small traders - showing the importance of large commercial and financial firms.

This comes as exchanges and market participants debate whether the rise of perpetual futures could erode volumes at established derivatives venues following a surge in trading of crude oil perpetuals during heightened geopolitical tensions in the Middle East.

The debate has intensified since the CFTC approved Kalshi's bitcoin perpetual futures contract in May, prompting CME Group to sue the regulator. Outgoing CME chairman and chief executive Terry Duffy has argued perpetual futures should be regulated as swaps under the Dodd-Frank Act rather than futures under the Commodity Exchange Act, saying the products encourage excessive leverage, distort pricing and are not credible risk management instruments because their funding-rate mechanism ties them to spot prices rather than allowing users to hedge future delivery dates.

Speaking on a call to present results on Thursday, Intercontinental Exchange (ICE) chairman and chief executive Jeffrey Sprecher spoke about the exchange's view that the segment does not compete with the traditional futures market.

"The reason we think it’s a misnomer that they are called futures is because they don’t produce a forward pricing curve, and so they are of very little use for hedgers," Sprecher said in response to an analyst question. "So they tend to be a match of a speculator to a speculator – and that tends to mean that somebody wins and somebody loses. The long-term success of a speculator-to-speculator market has to be that people are either enjoying it for entertainment purposes or something other than our traditional markets where we really lean in to commercial hedging."

The comments followed similar sentiments by rival CME Group during results last week. Chairman and chief executive Terry Duffy who highlighted the weaknesses of perpetuals for institutional derivatives users.

"While this product may be dubbed futures, they function much more like leverage spot products," Duffy said on a call with analysts at the time. "They may appeal to certain retail traders seeking high leverage, but they are not appropriate for the institutional risk managers who comprise the vast majority of our business. Perpetual futures are highly engineered instruments that rely on frequent funding rate adjustments that revert the position back to the spot price. They are known for high leverage and automated liquidations. They offer limited investor protections and introduce heightened market risk, particularly for retail participants.

"These products do not appeal to our core customers. Through the first half of 2026, 94% of our volume originated from institutional customers. Perpetual futures are in no way substitutes for the institutional hedging tools that these customers rely on."

Built for retail

Perpetual futures originated in cryptocurrency markets as instruments that provided continuous market exposure without an expiry date. Pirrong, who prepared the analysis on behalf of ICE, described them as "cash-settled derivatives contracts that replicate spot market price exposure while eliminating the need for physical custody" of the underlying asset. Funding payments between long and short positions kept prices aligned with the underlying reference market.

The paper argued that perpetuals were poorly suited to the principal function of commodity futures markets. "Perpetuals do not facilitate these trading strategies," Pirrong wrote, because they "do not offer contracts with different delivery dates", preventing commercial hedgers from matching exposures to specific future dates while also limiting the ability of swap dealers and managed money firms to trade calendar spreads.

Instead, Pirrong argued perpetual futures were "tailored to a specific clientele, small 'retail' traders". Features such as smaller contract sizes, leverage and automatic rolling reduced trading costs for individual investors but were "of little value to commercial and institutional market participants", he wrote.

The paper pointed to Hyperliquid's crude oil perpetual contract, which represented one barrel of oil, compared with 1,000 barrels for the benchmark CME crude oil futures contract. Commercial firms routinely hedged exposures running into millions of barrels, making perpetuals "ill-suited for the large positions typically managed by commercial firms", Pirrong wrote.

"Perpetual futures are competing for only a relatively small share of traditional exchanges' customer base," Pirrong concluded. While they could divert some retail order flow from incumbent exchanges, they could also attract new participants who would not otherwise trade futures. Because "retail traders represent a small proportion of commodity futures market activity", any effect on incumbent exchanges' price discovery was likely to be modest."