Futures

Futures are contracts that let you speculate on whether a crypto’s price will rise or fall. You don’t automatically buy the cryptocurrency itself.

What are futures?

A futures contract is a derivative. Its value depends on something else, such as bitcoin. In a standard futures contract, two parties agree on a price, amount, and settlement date.

You can open a long position if you think the futures price will rise. If you think the price will fall, you open a short position. If the price moves the other way, you lose money.

You often deposit collateral, also called margin. This lets you open a larger position than the amount you put in. This is called leverage, and it increases both gains and losses. Perpetual futures don’t have a set expiration date.

An example of futures

Suppose you open a long position for 0.1 bitcoin at a futures price of €50,000 per bitcoin. If the price rises to €55,000 and you close the position, your profit is €500 before fees.

If the price falls to €45,000, your loss is €500 before fees. If you don’t have enough collateral, a platform may close your position earlier. This is called liquidation.

Why are futures important in crypto?

Futures are used to speculate on price movements. They can also be used to hedge against price risk, for example by opening a short position alongside bitcoin they already own.

In news about the crypto market, you’ll often see futures mentioned in connection with leveraged trading, liquidations, and open interest. Open interest is the number or value of contracts that haven’t been closed yet. With perpetual futures, funding may also come up: periodic payments between long and short positions.

Futures aren’t the same as buying crypto outright. Fees, funding, and differences from the spot market price affect the result. With leverage, even a small price move can lead to liquidation. Depending on the contract and platform, losses can even exceed the collateral you put in.