How Futures Work
1. Two parties agree on a price for future delivery 2. Each party posts margin (collateral) 3. The contract is marked-to-market daily 4. At expiry: Physical delivery or cash settlement 5. Profit/loss = Difference between agreed price and market price at settlement
Futures in Crypto
Crypto futures come in two forms:
- Delivery (Quarterly): Settle at expiry (e.g., BTC-0328 settles March 28)
- Perpetual: No expiry (see "Perpetual Contract")
Delivery Futures Advantages:
- No funding rate costs
- Known settlement date for planning
- Premium/discount provides trading opportunities
Delivery Futures Disadvantages:
- Need to roll positions at expiry
- Less liquid than perpetuals
- Fewer available on most exchanges
Futures vs Spot
| Aspect | Futures | Spot |
|---|---|---|
| Ownership | Contract only | Actual asset |
| Leverage | Built-in | Cash or margin |
| Costs | Margin requirements | Full purchase price |
| Settlement | Future date | Immediate |
| Short selling | Native | Requires borrowing |