Crypto Futures for Beginners:
How to Trade with Leverage and Manage Risk
How to Trade with Leverage and Manage Risk
Futures contracts — agreements designed to be fulfilled at a future date — have existed for centuries. Initially, they served as instruments to confirm mutual commitments between parties.
Over time, financial minds realized these contracts could be used not only for securing intentions but also for hedging risk.
And with the arrival of retail traders on exchanges, futures markets became fertile ground for speculation. As a result, futures contracts evolved into various forms.
What Is a Classic Futures Contract?
A classic futures contract is standardized and traded on an exchange, with one key feature — expiration.
This means the contract has a specific maturity date by which the parties (buyer and seller) must fulfill their obligations. After settlement, the contract expires and ceases to exist — but don’t worry, by then a new contract will already be available for trading.
Originally, all futures were deliverable — meaning one party had to deliver the asset, and the other had to accept it.
However, with the advent of index-based futures, the need for cash-settled contracts arose. These contracts do not involve physical delivery. Instead, at expiration, both parties settle their positions in cash based on the final market price.
Example: BTC Futures on Deribit
Deribit offers cash-settled cryptocurrency index futures. Let’s imagine that you bought 1 BTC futures contract at 100,000 USDT.
At 8:00 UTC on the last Friday of the month, the contract expires. Suppose the average price during the final 5 minutes is 102,000 USDT. Upon expiration, your contract disappears, but your account increases by the difference:
102,000 − 100,000 = 2,000 USDT profit
Trading Futures with Leverage
One of the biggest attractions of futures is leverage. With a small capital outlay, you can control a much larger position.
For example:
This is powerful — but risky. If the price drops to 98,000 USDT, your position loses 2,000 USDT, triggering a liquidation.
⚠️ Be cautious: high leverage magnifies both profits and losses.
Risk Management and Position Sizing
To reduce risk, it’s advisable to limit each position to no more than 2% of your total capital. Let’s say you have 10,000 USDT.
That means:
Suppose BTC is trading at 100,000 USDT:
If price drops 5% (to 95,000):
If price rises 5% (to 105,000):
Why Do Futures Trade at a Different Price Than the Spot Market?
The price of a futures contract often differs from the price of its underlying asset. The main reason is the time value of money — when a trader buys a futures contract, they’re effectively borrowing funds to finance their position until expiration.
Deribit’s crypto futures reflect this: the futures price may be higher or lower than the current spot price of the coin.
Other factors, such as market sentiment, supply/demand imbalances, and funding costs, may also influence the difference.
Arbitrage Opportunities
If the price of a futures contract diverges too far from the spot price, arbitrage opportunities arise.
Traders can exploit the difference by taking offsetting positions in both the spot and futures markets. These activities help to bring prices back into alignment.
In an ideal, "no-arbitrage" world, the price of a futures contract is determined by the following formula:
F = S × (1 + r)^T
Where:
Conclusion
Classic cryptocurrency futures offer powerful tools for speculation, hedging, and capital efficiency. However, they come with significant risks — especially when using leverage. By managing position sizes carefully and understanding the mechanics of futures pricing, traders can better protect themselves and potentially profit in volatile markets.
📌 Remember: Your best asset is not leverage — it’s discipline.
Over time, financial minds realized these contracts could be used not only for securing intentions but also for hedging risk.
And with the arrival of retail traders on exchanges, futures markets became fertile ground for speculation. As a result, futures contracts evolved into various forms.
What Is a Classic Futures Contract?
A classic futures contract is standardized and traded on an exchange, with one key feature — expiration.
This means the contract has a specific maturity date by which the parties (buyer and seller) must fulfill their obligations. After settlement, the contract expires and ceases to exist — but don’t worry, by then a new contract will already be available for trading.
Originally, all futures were deliverable — meaning one party had to deliver the asset, and the other had to accept it.
However, with the advent of index-based futures, the need for cash-settled contracts arose. These contracts do not involve physical delivery. Instead, at expiration, both parties settle their positions in cash based on the final market price.
Example: BTC Futures on Deribit
Deribit offers cash-settled cryptocurrency index futures. Let’s imagine that you bought 1 BTC futures contract at 100,000 USDT.
At 8:00 UTC on the last Friday of the month, the contract expires. Suppose the average price during the final 5 minutes is 102,000 USDT. Upon expiration, your contract disappears, but your account increases by the difference:
102,000 − 100,000 = 2,000 USDT profit
Trading Futures with Leverage
One of the biggest attractions of futures is leverage. With a small capital outlay, you can control a much larger position.
For example:
- You buy 1 BTC futures contract at 100,000 USDT.
- You only need 2,000 USDT in margin (leverage = x50).
This is powerful — but risky. If the price drops to 98,000 USDT, your position loses 2,000 USDT, triggering a liquidation.
⚠️ Be cautious: high leverage magnifies both profits and losses.
Risk Management and Position Sizing
To reduce risk, it’s advisable to limit each position to no more than 2% of your total capital. Let’s say you have 10,000 USDT.
That means:
- 2% of 10,000 = 200 USDT per trade
- At 50x leverage: 4 USDT margin required to open a 200 USDT position
Suppose BTC is trading at 100,000 USDT:
- 200 USDT position = 0.002 BTC
If price drops 5% (to 95,000):
- Value = 95,000 × 0.002 = 190 USDT → 10 USDT loss
If price rises 5% (to 105,000):
- Value = 105,000 × 0.002 = 210 USDT → 10 USDT profit
Why Do Futures Trade at a Different Price Than the Spot Market?
The price of a futures contract often differs from the price of its underlying asset. The main reason is the time value of money — when a trader buys a futures contract, they’re effectively borrowing funds to finance their position until expiration.
Deribit’s crypto futures reflect this: the futures price may be higher or lower than the current spot price of the coin.
Other factors, such as market sentiment, supply/demand imbalances, and funding costs, may also influence the difference.
Arbitrage Opportunities
If the price of a futures contract diverges too far from the spot price, arbitrage opportunities arise.
Traders can exploit the difference by taking offsetting positions in both the spot and futures markets. These activities help to bring prices back into alignment.
In an ideal, "no-arbitrage" world, the price of a futures contract is determined by the following formula:
F = S × (1 + r)^T
Where:
- F = futures price
- S = spot price
- r = risk-free interest rate
- T = time to expiration (in years)
Conclusion
Classic cryptocurrency futures offer powerful tools for speculation, hedging, and capital efficiency. However, they come with significant risks — especially when using leverage. By managing position sizes carefully and understanding the mechanics of futures pricing, traders can better protect themselves and potentially profit in volatile markets.
📌 Remember: Your best asset is not leverage — it’s discipline.
Luuk Strijers
Deribit CEO
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