Crypto Futures and Leverage
Futures trading allows you to profit from both rising and falling crypto markets with leverage.
Understanding Crypto Futures
Perpetual Contracts
- No expiry date
- Most popular in crypto
- Funding rate mechanism
- Track spot price closely
Quarterly Futures
- Fixed expiry dates
- Often trade at premium/discount
- Used by institutions
- Settlement at expiry
Leverage in Crypto
How It Works
- 10x leverage: $1,000 controls $10,000
- Amplifies both gains and losses
- Liquidation if margin depleted
- Cross vs Isolated margin
Margin Types
- Cross Margin: Entire account as collateral
- Isolated Margin: Only position collateral at risk
- Isolated is safer for beginners
Liquidation
What is Liquidation?
- Exchange forcefully closes your position
- Happens when margin insufficient
- You lose your collateral
- Can happen in seconds
Avoiding Liquidation
- Use low leverage (3-5x max)
- Always set stop losses
- Use isolated margin
- Never all-in on one position
Funding Rates
How They Work
- Periodic payments between longs and shorts
- Positive rate: Longs pay shorts
- Negative rate: Shorts pay longs
- Keeps perp price near spot
Trading Implications
- High positive funding = market too bullish (contrarian short signal)
- High negative funding = market too bearish (contrarian long signal)
- Extreme readings often precede reversals
Risk Management
Golden Rules
- Never use more than 5x leverage
- Risk only 1-2% per trade
- Always use stop losses
- Use isolated margin mode
- Understand liquidation price before entering
- Never add to a losing leveraged position