Disclaimer: This page is not financial advice or an endorsement of digital assets, providers or services. Digital assets are volatile and risky, and past performance is no guarantee of future results. Potential regulations or policies can affect their availability and services provided. Talk with a financial professional before making a decision. Finder or the author may own cryptocurrency discussed on this page.
Finder makes money from featured partners, but editorial opinions are our own. Advertiser Disclosure
101 guide: Bitcoin futures trading
Find out how Bitcoin futures trading works and why people do it in this simple guide.
Bitcoin futures trading lets you go long on Bitcoin if you want to bet on a price rise, or go short on Bitcoin if you want to bet on a price drop.
When you buy Bitcoin futures, what you’re actually purchasing is an agreement to receive a certain amount of Bitcoin, or the equivalent amount of money, at a specified time.
With this mechanism, you can profit from correctly betting that the price of Bitcoin will go up, which is called going long, or profit from correctly guessing that the price will go down, which is called going short.
How Bitcoin futures trading works
Note that the following is a general guide only. Individual trading platforms may have variations on these systems.
In its simplest terms, Bitcoin futures works by having you deposit some money into a Bitcoin futures exchange and buying Bitcoin futures with it. Profits or losses will be realized when a futures contract is sold, or when it expires naturally.
You will typically be able to keep track of your realized profits or realized losses on an ongoing basis, which shows an approximation of how much you would gain or lose if you were to sell a contract at the current time.
Functionally, this is similar to watching your balance rise and fall as the market does.
The exact way your total realized profits and losses will balance out depends on how many contracts of which kinds you’ve purchased, the contract size and specifications, and what the market is doing.
Some of the factors that will affect how your realized profits and losses move are:
- Contract size. The contract size is simply how large each contract is. For example, if you bought a thousand contracts, each of which was equivalent to $1, you’d have $1,000 in the market. Sometimes contracts are valued in BTC or another cryptocurrency, and sometimes they’re valued in dollars or other fiat currencies.
- Long or short? Short contracts mean your balance will rise as Bitcoin prices fall and fall as Bitcoin prices rise, while long contracts mean your balance will rise when Bitcoin prices do and fall when Bitcoin prices do. You can simultaneously have multiple contracts of different types which can offset each other.
- Leverage. Functionally, this magnifies how much your balance rises or falls when the markets move. If you’re using 100x leverage on a contract, your balance will rise or fall 100x faster than normal for the size of that contract. 100x is typically the highest leverage an exchange will offer and you can have different leverage on different accounts.
- Expiration date. This is the date at which a contract is automatically closed and settled up. You can generally sell your contracts and pocket the gains or losses at any time, but when there’s an expiry date, that’s when the futures will close. They can sometimes be extended and many exchanges will also offer perpetual contracts, which are contracts that don’t expire.
Perpetual contracts vs. futures contracts
Perpetual contracts don’t have a set expiration date, while other futures contracts do.
Bitcoin perpetual futures contracts, or perpetual swaps, will typically track the spot price (the current market price) of Bitcoin.
Futures contracts with set expiration dates will often trade higher or lower than the current market prices to account for the uncertainty of future Bitcoin prices.
What is futures trading used for?
Beyond speculation, futures trading can also be used as a risk management tool and a way of playing the market in more depth.
Futures contracts can be used to multiply profits, mitigate risks and profit from falling prices. They can also be a very quick way of losing money if you get liquidated, which can happen very quickly when using 100x leverage.
Bitcoin futures liquidation and collateral
When you’re trading futures without leverage, the value of your futures contracts just rises and falls with the crypto markets as usual, according to your open contracts.
But when you’re using leverage, the money used to buy a contract serves as collateral and you’re essentially trading on borrowed money.
Just like leverage can help you quickly make more money on correct bets, it can also be a very fast way of losing all your funds on incorrect bets. If the markets go the wrong way, you can lose you entire deposit.
For example, if you’re trading with 100x leverage, then a price change of just 1% could be enough to wipe out all your collateral and trigger liquidation.
Different exchanges will often have different liquidation thresholds. For example, some might close your orders once you’ve lost at least 80% of your collateral, and account for fees in different ways.
What are the fees for future trading?
A range of fees may apply, including:
- Trading fees. There will typically be a commission fee for buying and selling futures contracts, similar to buying or selling cryptocurrency outright.
- Extension fees. Fees may apply for extending a contract past its usual close date.
- Overnight fees. Fees may apply when contracts open through certain time periods.
- Interest payments. When you margin trade, you’re borrowing money to leverage your trades. There will often be a cost for actually borrowing that money.
- Deposit and withdrawal fees. You might have to pay fees for transferring money in or out of an exchange.
Where can I trade Bitcoin futures?
Some traditional trading platforms now offer Bitcoin futures, as do a number of dedicated cryptocurrency exchanges and forex trading platforms.
These are used to facilitate trading during specific hours, in well-regulated, legitimate and largely transparent environments.
Is Bitcoin futures trading safe and regulated?
All of the Bitcoin futures exchanges listed on this page are large, well-known and have a reputation for being legitimate.
How well regulated an exchange is depends largely on where it’s based. Some are largely unregulated, while others such as CME are relatively tightly regulated.
But to a certain extent, Bitcoin futures trading is always at least a bit dangerous given the volatility. Even on a perfectly legitimate exchange, it’s possible to quickly lose money.
Frequently asked questions
More guides on Finder
How to day trade crypto
Day trading crypto involves making short-term trades to take advantage of small price fluctuations.
How to short Bitcoin
Learn how you can use various short-selling strategies to further your Bitcoin profits.
A beginner’s guide to Bitcoin and cryptocurrency ETFs
ERROR – Please specify a content_type in the partial shortcode.
Compare cryptocurrency trading bots
Your detailed guide to cryptocurrency trading bots, how they work and the benefits and risks you need to consider when choosing a crypto trading bot.
A beginner’s guide to cryptocurrency funds
Your guide to cryptocurrency funds, how they work and the potential benefits and risks they offer.
A step-by-step guide to crypto market technical analysis
There’s much to gain and lose in the volatile cryptocurrency market. We’ll show you how to do an in-depth technical analysis to make the right decisions.
Cryptocurrency arbitrage made easy: A beginner’s guide
A beginner’s guide to cryptocurrency arbitrage, how it can help you take advantage of crypto price differences, and the risks you need to be aware of before you start trading.
Ask an Expert