Bitcoin futures trading

Find out how Bitcoin futures trading works and why people do it, in this simple guide.

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The trading of Bitcoin futures enables you to bet on the direction of its price. If you want to bet on the price to rise, you go "long" and if you want to bet on the price to fall you go "short."

When you buy a Bitcoin futures contract, 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. It's generally regarded as a risky way of trading, more suited to advanced traders than beginners.

This guide will explore the basics of trading Bitcoin Futures, some of the exchanges you can use, as well as highlight the risks involved.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

Some of the exchanges where you can trade Bitcoin futures

Name Product Deposit methods Fiat Currencies Cryptocurrencies
Binance Futures Trading
Cryptocurrency
-

25
cryptocurrencies

Disclaimer: Highly volatile investment product. Your capital is at risk.
Trade perpetual futures contracts on dozens of popular trading pairs with up to 125x leverage.
KuCoin Cryptocurrency Exchange
Cryptocurrency, PayPal, Wire transfer, Credit or Debit Card, SEPA
USD, EUR, GBP, RUB, CNY, AUD, KRW, JPY, TRY, VND & 40+ more

211
cryptocurrencies

Finder Exclusive: Get up to 10 USDT in trading fee rebates for signing up and making a deposit, and up to 30 USDT in trading fee rebates after buying with fiat. T&Cs apply.
Browse a variety of coin offerings in one of the largest multi-cryptocurrency exchanges and pay in cryptocurrency.
OKEx Cryptocurrency Exchange
Bank transfer, Cryptocurrency, iDEAL, PayPal, POLi, SEPA, Faster Payments (FPS)
USD, CNY, EUR, ARS, AUD, BGN, BRL, CAD, CHF, COP & 20+ more

270
cryptocurrencies

Promo: Earn US$10 in BTC when you refer a friend and they purchase $100 of cryptocurrency. T&Cs apply.
Listing over 100 cryptocurrencies, OKEx offers its users a variety of payment methods and coins to choose from.
FTX Cryptocurrency Exchange
Credit card, Wire transfer, Silvergate Exchange Network (SEN), Signature SIGNET
USD,EUR,GBP,AUD,HKD,SGD,TRY,ZAR,CAD,CHF,BRL

123
cryptocurrencies

FTX is an exchange built by traders for traders, with a range of derivatives markets such as options and futures with deep leverage, in addition to standard spot markets. Note: Not available for US customers.
Deribit Cryptocurrency Exchange
Cryptocurrency
-

2
cryptocurrencies

You can trade Bitcoin and Ethereum with up to 100x leverage on this Netherlands-based cryptocurrency derivatives exchange.
Bitfinex Professional Trading Exchange
Credit card, Cryptocurrency, Bank Wire
USD, EUR, GBP, JPY

164
cryptocurrencies

Cryptocurrencies are a highly volatile investment product. Your capital is at risk.
Spot trade all of the major cryptos on this full-featured exchange and margin trading platform.
Huobi Cryptocurrency Exchange
AdvCash, Cryptocurrency, SWIFT, Wire transfer
GBP, USD, AUD, EUR, INR, BRL, KHR, CAD,CNY, NZD & 15+ more

219
cryptocurrencies

Huobi is a digital currency exchange that allows its users to trade more than 190 cryptocurrency pairs.
Gate.io Cryptocurrency Exchange
Cryptocurrency
-

37
cryptocurrencies

Liquid Cryptocurrency Exchange & Margin Trading
Bank transfer, Cryptocurrency, SWIFT, Credit or Debit Card, SEPA
AUD, EUR, JPY, USD, SGD, PHP, HKD

132
cryptocurrencies

Disclaimer: Highly volatile investment product. Your capital is at risk.
Liquid is a unified, globally-sourced trading platform that bridges the worlds of fiat and crypto.
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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 which 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 don't have any expiry date.

Perpetual contracts vs futures contracts

Perpetual contracts don't have a set expiry 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 expiry dates will often trade higher or lower than the current market prices, to account for the uncertainty of future Bitcoin prices.

How to trade a Bitcoin futures contract?

Here is a step by step guide to help you trade your first Bitcoin futures contract with Binance, the largest market for Bitcoin futures:

  1. You need to open a Futures trading account with the exchange. As a prerequisite, it requires you to enable two-factor authentication (2FA) in order to fund the futures account. This entails an additional layer of security clearance before you can access your funds only with the codes received in both authentication instances.
  2. Next, you deposit funds in this account. You may do this through various different currencies. On Binance, you can deposit funds in Tether (USDT), Binance Coin (BNB), Binance USD (BUSD), and other cryptos accepted by Binance Futures. These funds can then be used as collateral or margin.
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  3. Select the type of futures contract you want to purchase. On Binance, there are two types of Futures contracts, USD(S)-M Futures and Coin-M Futures. The former are BTCUSDT perpetual contracts and the latter are BTCUSD coin margined contracts.
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  4. Now you can choose the leverage for your BTC futures contract. Binance offers you leverage of up to 125x, this might vary from exchange to exchange. The default on Binance is set to 20x but you can toggle between 1x and 125x. It essentially allows you to control a larger contract value with a smaller amount of funds. But higher leverage carries a higher liquidation risk, thus you should be mindful about the leverage of use. 125x is considered extremely high risk and only for experienced traders – your capital is at risk.
  5. After selecting the leverage, you can "place order" depending on the types of orders an exchange offers. Two of the basic order types available on Binance are buy-limit and buy-market order to invest in a BTC futures contract. The other types of orders are stop-limit order, stop market order, take profit limit order, take profit market order, and trailing stop order amongst others.

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 your 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.

Traditional exchanges that now offer Bitcoin futures include CME and Cboe.

These are used to facilitate trading during specific hours, in well-regulated, legitimate, and largely transparent environments.

Is Bitcoin futures trading safe and regulated?

Bitcoin futures trading is never safe. The markets are prone to manipulation and unpredictable price movements. You can do everything right and still lose money. Some exchanges are also safer than others, depending on how reliable, regulated, and legitimate it is.

How well regulated an exchange is depends largely on where it's based. Some are largely unregulated, while others such as CME and Cboe are relatively tightly regulated.

Risks of trading Bitcoin futures

While the potential to make profits through the trading of Bitcoin futures is immense, there are several downsides also that you need to consider before you delve into this financial instrument. A few of these factors are listed below that should keep in mind:

  • Regulations. Regulatory bodies don't often have a clear stance on derivative products based on underlying crypto assets yet. In fact, the SEC has even warned investors of futures risks in mutual fund investments considering the increasing population of Bitcoin exchange-traded funds (ETFs).
  • Not suitable for all investors. Bitcoin futures are not simple in nature, they are complex financial instruments that a beginner investor might find difficult to wrap their head around.
  • Losses not limited to funds deposited. Since futures contracts are margin products, the losses (and the gains) are usually amplified. You stand the chance to lose your entire investment but not just that, it goes beyond that. Your losses are not limited to the equity and funds in your account while trading. In case of a huge loss, you may be required to pay up additional funds to cover the losses as your legally liable to do.
  • Volatility. Bitcoin despite being the flagship cryptocurrency is an extremely volatile asset. Due to this, there have been times when the asset fluctuated by more than 20% in a single day which is much higher than what traditional equities and commodities markets traders are used to.
  • Influence on spot markets. In the traditional financial markets, futures are usually considered to be the indicators of price thus contributing to the volatility of the underlying asset. But since the size of the crypto futures market is currently limited to being a fraction of the spot markets, the influence is limited as well. Although as the market grows, so will its influence of spot markets as seen in traditional futures markets where the size of the futures market is several times the size of the spot markets.

Pros and cons of Bitcoin futures trading

Compared to simply buying and selling Bitcoin, futures trading has some benefits and drawbacks.

Pros

  • It lets you speculate on Bitcoin prices without owning Bitcoin
  • You can bet on either direction of the price volatility of Bitcoin
  • You are able to apply leverage to multiply risks and potential returns
  • Can be used to hedge against unexpected price moves
  • You can control a large value of control with smaller funds allowing higher gains

Cons

  • Cannot be used to buy Bitcoin, except where trades are settled in BTC rather than USD
  • More complicated and difficult than simply trading Bitcoin
  • Highly risky compared to hodling Bitcoin
  • Bitcoin markets are unpredictable and prone to manipulation, which can lead to liquidation
  • It is a market for sophisticated traders and speculators

Frequently asked questions

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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