This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
Cryptocurrency futures are contracts that allow the buyer to take a leveraged position on the price of a cryptocurrency without owning the underlying coin. The margin requirement is typically 1-10% of the notional, and the leverage is 10× to 100×. The combination of high leverage and high volatility makes crypto futures the most leveraged instrument available to retail traders, and the risk of total loss is real and common.
The strategies for trading crypto futures are similar to the strategies for trading stock futures, but the stakes are higher. The daily move on Bitcoin can be 5-10% (compared to 1-2% for a major stock index), and the leverage amplifies the move to 50-100% of the trader's margin. The trader who is on the wrong side of a 10% move with 10× leverage loses the entire margin.
The margin structure for crypto futures
The margin requirement on a crypto futures contract is set by the exchange, and the requirement varies by the cryptocurrency and the exchange. Bitcoin futures have a maintenance margin of 1-5% of the notional (10× to 20× leverage), and the margin can change during volatile periods. Some exchanges offer 100× leverage on Bitcoin, and the margin is 1% of the notional.
The margin is posted in the base currency (USDT or USD for most contracts), and the position is marked to market in real time. The variation margin is settled every few seconds (for perpetual futures) or daily (for dated futures). The margin call can fire within minutes if the price moves against the trader.
The perpetual futures structure
The most common type of crypto futures is the perpetual futures contract. The contract does not expire, and the trader holds the position until the trader closes it or the margin is exhausted. The contract has a funding rate that aligns the perpetual price with the spot price, and the funding rate is paid between long and short holders every 8 hours.
The funding rate is a cost (or a credit) for holding the position overnight. The rate is typically 0.01-0.1% per 8-hour period, and the cost is 1-3% per month for a 10× leveraged position. The funding rate is a real drag on the return, and the trader who holds the position for weeks or months pays the funding cost for the entire period.
The perpetual futures contract is regulated by the exchange, not by a central counterparty (CCP). The exchange sets the margin requirement, the funding rate, and the liquidation mechanism. The exchange is the counterparty to every trade, and the exchange's credit risk is the trader's exposure.
The strategies for using leverage in crypto futures
The highest-leverage strategy is the scalp. The trader takes a 10-50× leveraged position for a few minutes or a few hours, with a tight stop, aiming to capture a small price move. The scalp is the most common strategy among retail crypto futures traders, and it is also the strategy that produces the largest number of losses, because the stop is triggered by normal volatility.
The moderate-leverage strategy is the swing. The trader takes a 3-10× leveraged position for a few days, with a wider stop, aiming to capture a medium-term move. The swing is a safer strategy than the scalp, because the stop is further from the entry and the position survives normal volatility. The risk is the funding rate, which compounds over the holding period.
The low-leverage strategy is the position trade. The trader takes a 1-3× leveraged position for weeks or months, aiming to capture a long-term move. The position trade is the safest strategy in terms of margin risk, and it is the riskiest in terms of the funding rate, which compounds over the entire holding period.
The risk management that matters
The most important risk management tool is the position size. A position that is sized to 1-5% of the trader's capital, with a stop that corresponds to a recoverable loss, is a position that the trader can take repeatedly without going to zero. A position that is sized to 20-50% of the trader's capital, with the maximum available leverage, is a position that can go to zero in a single move.
The second is the stop. The stop on a crypto futures position should be placed at a level that corresponds to the strategy's invalidation point. A swing trader places the stop below the recent low; a scalp trader places the stop at a small distance from the entry; a position trader places the stop at a level that represents a trend reversal.
The third is the funding rate. The funding rate is a real cost, and the trader should factor the cost into the position sizing. A 0.05% funding rate per 8-hour period on a 10× leveraged position is 0.5% of the margin per day, which is 15% of the margin per month. The cost is significant, and the trader should close the position before the cost erodes the profit.
Related resources
- Brokers By Investment Type → Crypto Trading
- Brokerage Fees → Margin Rates Comparison
- Beginner Guides → What Is Margin Trading
Where to start
If you are evaluating crypto futures trading, the most useful features to compare are the margin requirement, the leverage available, the funding rate, and the exchange's regulatory status. Our broker comparison lists the brokers that offer crypto futures and the available leverage, which together tell you what the margin structure looks like before you take the position.