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Crypto Futures

Crypto Futures: A Complete Guide for Traders

Cryptocurrency futures are one of the most popular trading instruments, allowing speculation on price movements using leverage. Unlike spot trading, where traders physically buy assets, futures contracts allow trading cryptocurrencies without actually owning them.

Futures trading is especially popular on Binance Futures, one of the largest platforms for derivatives trading. In this article, we will cover:
✔ How crypto futures work and how they differ from spot trading.
✔ How leverage and liquidation systems operate.
✔ The difference between perpetual and traditional futures contracts.
✔ What fees and risks traders face.
✔ A step-by-step example of trading futures on Binance.

How Do Crypto Futures Work?

Futures are derivative contracts that allow traders to speculate on cryptocurrency prices without owning the asset.

📌 Key Features:

Traders can go long (buy) or short (sell) a cryptocurrency.
No need to own the actual asset—just speculate on its price.
Leverage (up to x125 on Binance) allows higher position sizes.
Futures contracts can be perpetual or have an expiration date.

Example Trade:

A trader opens a long position on BTC/USDT with x10 leverage.
If BTC rises 5%, the profit is 50% of the invested amount (5% x 10).
If BTC drops 5%, the loss is 50%, and if the margin is insufficient, the position may be liquidated.

📌 Main difference from spot trading: In spot trading, the actual asset is purchased, while in futures trading, only a contract representing the price of the asset is traded.

Types of Crypto Futures: Perpetual vs. Traditional Contracts

On Binance and other exchanges, there are two main types of futures contracts:

1. Perpetual Futures

🔹 No expiration date – positions can be held indefinitely.
🔹 Funding Fee – traders pay or receive funding fees every 8 hours based on market conditions.
🔹 Most popular type of futures in crypto trading.

📌 Example:

You open a long position on BTC/USDT.
After 8 hours, the price remains unchanged, but you pay a funding fee to keep your position open.
If there are more buyers than sellers, buyers pay the funding fee (and vice versa).

2. Traditional (Quarterly) Futures

🔹 Have a set expiration date.
🔹 Automatically closed when the contract expires.
🔹 Less popular in crypto trading.

📌 Example:

You buy a BTC/USDT contract that expires in three months.
When the expiration date arrives, the contract is settled at the market price.

Leverage and Liquidation

What is Leverage?

Leverage allows traders to borrow funds from the exchange to increase their trading position.

📌 How does leverage work?

x10 leverage – control $1,000 with just $100.
x125 leverage – control $12,500 with just $100.

⚠ The higher the leverage, the higher the risk of liquidation!

How Liquidation Happens

If the price moves against the trader’s position, and there is not enough margin, the exchange automatically closes the position, leading to liquidation.

📌 Example of Liquidation:

A trader goes long on BTC with x50 leverage.
BTC price drops 2% → the trader loses 100% of their deposit (2% x 50).
With x5 leverage, the loss would be only 10%, avoiding liquidation.

✅ Conclusion: Higher leverage increases potential profits, but also drastically raises the risk of liquidation.

Fees on Binance Futures

Binance Futures charges several types of fees:

✔ Trading Fee – 0.02% to 0.04% per trade.
✔ Funding Fee – paid every 8 hours (varies by market conditions).
✔ Liquidation Fee – applied if margin runs out.

📌 Tip: Using BUSD or BNB for fee payments can reduce costs.

Step-by-Step Guide to Trading Futures on Binance

1️⃣ Deposit Funds:

Transfer USDT or BUSD to your Futures Wallet.

2️⃣ Choose a Trading Pair and Order Type:

Example: BTC/USDT long position.

3️⃣ Select Leverage:

Default is x20, but beginners should stick to x5–x10.

4️⃣ Place an Order:

Market Order – instant execution at current price.
Limit Order – execution at a set price.

5️⃣ Manage Risk:

Set Stop-Loss (to limit losses).
Set Take-Profit (to lock in profits).

6️⃣ Close the Position:

Either manually exit or wait for the price to reach your target.

Pros and Cons of Crypto Futures Trading

Pros:

✔ Trade in both directions (long & short) – profit from both rising and falling prices.
✔ Leverage increases potential profits.
✔ High liquidity and fast execution.
✔ No need to own actual cryptocurrency.

Cons:

⚠ High risk of liquidation, especially with high leverage.
⚠ Additional fees (Funding Fee, Liquidation Fee).
⚠ Not suitable for beginners without trading experience.

Conclusion

📌 Crypto futures are derivative contracts that allow traders to speculate on price movements without owning the actual asset.

📌 Perpetual futures (Perpetual Contracts) are the most popular type since they have no expiration date.

📌 Leverage is a powerful tool, but it significantly increases the risk of liquidation.

📌 Futures trading requires strong risk management, or traders risk losing their entire balance quickly.

🔥 If you're new to futures trading, start with low leverage (x2–x5) and practice on small amounts before taking larger risks.