What are crypto futures?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
A futures contract fixes a price now for settlement later; in crypto the dominant form is the perpetual contract, which has no expiry at all. Positions are backed by collateral, so losses can exceed the deposit. Unlike spot, you never hold the underlying asset.
Key points
- You trade a contract tracking the price, not the asset
- Perpetual contracts have no expiry date
- A funding rate pulls the contract price toward spot
- Being a margin product, it carries liquidation risk
Definition
A contract whose value tracks an underlying crypto asset and settles on predefined terms. It comes as a dated contract with an expiry, or as a perpetual contract with none.
A dated future settles at a reference price on its expiry date. The perpetual contracts that dominate crypto never expire, so a position stays open until you trade out of it. With no expiry to anchor it, the contract price can drift from spot, which is why a funding mechanism exists.
The funding rate periodically moves money between the two sides: longs pay shorts when the contract trades above spot, and shorts pay longs when it trades below. That pressure pulls the contract back toward spot. It is a recurring cost for as long as the position is open, and both the rate and the interval differ by exchange.
Because futures never deliver the asset, anyone who actually wants to hold the coin needs spot instead. And since these are margin products, a falling margin ratio can force the position closed. In some jurisdictions the product is restricted or unavailable.
Watch out for
- · Losses can run past the deposit and leave an amount owed
- · Funding rates move with market conditions and can cost more than expected
- · Contract and spot prices are not identical, and the gap widens in volatile conditions