Understanding Crypto Futures Contracts: The Basics

Futures contracts might sound complex, but the mechanics are actually straightforward once you break them down.

At their core, futures let you lock in a price today for an asset you'll receive (or deliver) later. You're essentially making a bet on where Bitcoin, Ethereum, or other cryptocurrencies will trade by a specific expiration date.

Here's the key difference from spot trading: you don't need to own the full amount upfront. Instead, you put down margin—a fraction of the contract's total value. This leverage amplifies both gains and losses. A 5% move in the underlying asset can swing your margin account 50% or more.

Long positions profit when prices rise. Short positions profit when prices fall. The exchange matches buyers and sellers, and settlement happens at expiration or when you choose to close early.

Liquidation is the reality check. If your position moves against you and your margin falls below the maintenance level, exchanges automatically close your trade to prevent further losses. That's why risk management matters—a lot.

Futures also determine spot price through arbitrage. Traders exploit price gaps between futures and spot markets, which keeps both relatively aligned.

Whether you're hedging holdings or speculating on price swings, understanding these mechanics helps you trade with conviction instead of guesswork.