How crypto futures work
Perpetual futures are the workhorses of crypto derivatives. Bybit, Binance, OKX, dYdX, and Hyperliquid collectively see $100B+ of daily perp volume. Key mechanics:
- No expiry — positions stay open indefinitely.
- Funding rate — a payment exchanged between longs and shorts every 8 hours (or hourly on some venues). The rate floats with market sentiment: positive funding (bull market) means longs pay shorts; negative funding means shorts pay longs.
- Margin — a small fraction of notional value (e.g. 1-10%) is held as collateral.
- Cash-settled — P&L is credited in stablecoins; no physical delivery of BTC ever happens.
Dated futures — quarterly and monthly contracts expiring on a fixed date. Used for institutional hedging, basis trades (capturing the spread between futures and spot), and funding-rate-adjacent strategies. CME Bitcoin futures are the main regulated US venue.
What crypto futures are used for
- Speculation — leveraged directional bets without owning spot.
- Hedging — short perps against spot holdings to neutralize directional exposure.
- Basis trading — buy spot, short a quarterly future trading above spot, capture the premium at expiry.
- Funding arbitrage — when perp funding is extreme, traders can hold spot + short perps (or vice versa) to collect funding payments.
Risks and considerations
Futures in crypto are almost always leveraged and therefore carry liquidation risk — the #1 source of retail loss on these products. Funding rates can bleed positions during extended trends (a year of 0.03%-per-8h positive funding costs roughly 32% annualized for longs). Exchange risk matters too: FTX, Mt. Gox, and various smaller venues have collapsed with customer funds; regulated venues (CME, LedgerX) cost more in fees but eliminate counterparty risk. On-chain perp DEXs shift risk from counterparty to smart-contract and oracle — different, not necessarily smaller. Understand the specific failure modes of your venue before deploying size.