Cryptocurrency Futures Trading Guide

Since we have added cryptocurrency futures markets we are obliged to introduce them to those who are not familiar with the concept.

Cryptocurrency futures contracts trading

When trading cryptocurrency futures, a trader signs a contract with a predetermined outcome. That means that a trader doesn’t exchange one cryptocurrency for another. He doesn’t even exchange it for fiat currency. Instead, he signs a contract through which he predicts the future price of the asset. Therefore, once he enters the trade, he signs a contract betting on the future price, while exiting the trade means closing the previously signed trading contract.

However, it is important to note that a trader agrees to sell that contract also on a predetermined date at a fixed price.

For example, Sonia thinks that the price of BTC is going to tank from the current $9,900 to $8,000 during the next week. She signs a futures contract to sell 1 BTC ten days from now at the current price of $9,900. If BTC indeed tanks to $8,000, Sonia made a hefty profit of $1,900 in a single trade.

What are cryptocurrency futures useful for?

You might ask yourself, what are cryptocurrency futures useful for if you can acquire some crypto directly?

The answer to that question is not one-sided.

As you will see further down in the paragraph about trading with leverage, when trading cryptocurrency futures, traders are given more options to enhance their gains or mitigate their possible losses than while trading on the classic cryptocurrency exchange.

On the other hand, cryptocurrency futures are also used to mitigate the risk of other businesses. For example, cryptocurrency miners may sign a futures contract in order to ensure that volatility doesn’t ruin their long term plans and business calculations. They simply make the price predictable by signing a futures contract and, safe from the speculative price movement, continue mining knowing that the price of their asset will remain stable (in accordance with a contract signed).

Moreover, futures contracts can provide a hedge against a loss for those who own digital assets. Simply put, a trader who owns BTC can, if he thinks that the price is going to drop, “bet” on his prediction (go short) and earn more BTC by just being right. That means that, by going short, he bought a futures contract and he can sell it once the price plummets. In other words, by cleverly using the given financial instrument on the trading platform, a skilled trader can profit from the bearish market movement.

How and where to trade cryptocurrency futures contracts

There are more than a few cryptocurrency futures platforms in the world, and some of the most significant ones are BitMEX, Kraken and Binance.

However, while BitMEX is a derivatives/futures platform exclusively, Kraken and Binance where first a crypto spot exchange before also becoming a futures trading platform. To trade on these platforms, a trader first needs to make a trading account and deposit a currency accepted by the trading platform.

Once the account is topped up, a trader may begin trading. The same rules of technical analysis apply for futures trading as for the normal cryptocurrency trading. However, the first thing a trader will see is that futures trading platforms usually offer something called leverage for their customers, so let’s explain what that means.

What is leverage and how to trade with leverage

Leverage is a capital that a trader borrows from the broker in order to enhance the potential gains.

For example, Sven owns 1 BTC (his margin) and wishes to take a long position with a futures contract. He takes leverage of x10, and, therefore, enters the trade with the value of 10 BTC ( 1 x 10 = 10).

Leverage can be viewed as a loan from the bank, which has to be repaid. Therefore, a broker takes his interest as long as the trader’s position remains open. Also, once the contract has been sold, a trader has to repay the loan (leverage) to the broker.

As this example made it obvious, trading with leverage is a risky business where an inexperienced trader may easily lose all his deposited funds. But there is another important thing…

Can a person go bankrupt by trading with leverage?

The answer is simple. Usually, no.

Platforms that offer leverage to their traders usually have insurance that will not allow a trader to end up in debt after exiting the trade. Simply put, they have developed a margin and liquidation method that are created to block any trader’s margin from ever going below 0.

What is liquidation?

Liquidation is, basically, the termination of the trading contract. There are a few ways that that can happen.

First is when a trader voluntarily liquidates as the price has reached some predetermined value he is satisfied with. That means that a trader recorder a certain gain through a trade and exit a trade in profit.

The second is when a trader’s stop-loss gets triggered and the contract automatically liquidates. That means that, by setting a stop-loss order, a trader secured himself from losing more than a predetermined percentage of his funds.

The third is when a broker, through a preprogrammed set of rules, liquidates a futures contract by force. This can happen if a trader’s position threatens to leave him in debt. In that case, those bankruptcy prevention policies come into play to prevent that from happening by liquidating the position.

Risks of futures trading

As in every other kind of asset trading, futures carry the risk of losing money. Still, that risk is even more enhanced by the possibility of taking a loan from the broker (trading with leverage) which can push a trader towards really heavy losses.

Moreover, platforms that offer futures contracts trading, more often than not, have a more complex and harder to navigate UI than a normal cryptocurrency exchange, which makes them harder to navigate for a less experienced trader.


As always, we have to emphasize the importance of education for traders. Especially when such a risk as futures trading is concerned. Technical and fundamental analysis can be essential in making the right decision while trading any asset, not to mention trading futures with leverage.

Therefore, in order to be an efficient futures trader, an individual has to be confident in his TA skills and, preferably, try out some of the available futures trading simulators before embarking on such a risky journey.

Until the next time, trade responsibly.

Disclaimer: This article is not investment advice. Note that cryptocurrencies are highly volatile assets and very risky investments. Do your research or consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.