Futures trading offers a dynamic way to gain exposure to market movements without holding the underlying asset. In this comprehensive guide, we explore the fundamentals of futures trading and how to get started with a single derivatives account.
Futures are standardised, legally binding agreements to buy or sell an asset at a set price on a specific future date. It’s helpful to understand that these are derivative instruments, meaning they derive value from an underlying asset.
Basically, these markets let people either protect themselves from price swings or try to profit from them. Since everything happens on a formal exchange, the amount and quality of what’s being traded are always the same. The only thing left to negotiate is the price.
Learn about futures vs. options
Futures trading works by having two parties enter a legal agreement to buy or sell an asset at a specific price on a future date. Instead of paying the full value upfront, traders use leverage by putting down a small deposit, allowing them to control large amounts of an asset while only negotiating the final price.
Everything starts with a prediction on which way the market will move. If you go long, you agree to buy the asset later because you expect the price to rise. If you go short, you agree to sell the asset later because you expect the price to fall.
Unlike buying stocks, you don't pay for the whole asset when trading futures. You provide margin, which is like a good-faith deposit (a percentage of the total value of the trade).
The benefit is you can control a large position with very little cash. The risk is that small price moves are magnified. If the market moves against you and your account balance drops too low (below the ‘maintenance margin’, you’ll be placed on ‘margin call’ – a demand from your broker to add more cash immediately or have your position closed.
Futures markets don't wait until the end of the contract to settle up. Every day, the exchange looks at the current market price and adjusts your account. If the price moved in your favor, money is added to your account. If it moved against you, money is deducted.
Most traders never actually touch the physical asset (like barrels of oil or gold bars). Instead, they exit the trade in one of two ways:
Discover 10 futures trading strategies
Traditional futures have fixed expiration dates, often following a monthly or quarterly cycle. These contracts are identified by standardised month codes. As expiration approaches, traders can ‘roll’ their positions to a later month.
Perpetual futures contracts don’t have an expiration date. This allows traders to hold a position indefinitely as long as they maintain enough margin. Perpetuals offer significant flexibility for maintaining long-term market exposure without the friction of rolling contracts.
To stay tethered to the underlying spot price, these contracts use a funding rate mechanism. This is a periodic payment exchanged between long and short traders. If the contract price is above the spot price, longs pay shorts. If it is below, shorts pay longs.
More on traditional vs. perpetual futures
To begin, you must open an account with a registered broker. Then, as per NFA rules, you must provide some verification info, as well as your financial data and experience to ensure suitability. Our platform allows seamless access to USD-settled contracts from an existing account.
Decide which asset class aligns with your strategy. The futures market is diverse, covering equity indices, energy, agriculture and metals.
Decide if you believe the price will rise (take a long position) or fall (take a short position). Use leverage cautiously to manage your exposure.
A disciplined approach requires acknowledging that trading futures involves substantial risk and losses can exceed your initial margin. Most traders understand the importance of using stop-losses and take-profit orders to protect their capital. Only risk capital that you can afford to lose.
Keep a close eye on margin requirements and the daily mark-to-market adjustments. When trading perpetual futures, always monitor the funding rates.
Traders use these instruments for several strategic reasons:
Futures have evolved from their agricultural roots into a global system for various asset classes. On our platform, you can access a variety of perpetual contracts that are all USD-settled and housed within your derivatives account.
Traders can trade commodity futures in metals with varying leverage options:
Here’s how you can start trading perpetual futures with us.
What is the difference between options and futures?
Futures contracts obligate both parties to complete the transaction at a set price. Options give the buyer the right, but not the legal obligation, to buy or sell the asset.
Can you hold a futures contract forever?
Traditional futures expire on a set date. However, you can hold a position indefinitely with perpetual futures, if you meet margin requirements and account for funding rates.
What is a funding rate in perpetual futures?
The funding rate is a periodic payment between traders that keeps the contract price aligned with the spot market price.
How much money do I need to start trading futures?
You only need enough to cover the initial margin requirement. Micro contracts have lower requirements, sometimes starting with as little as a few hundred dollars depending on the asset.
What does it mean to go short?
Going short means selling a contract first with the expectation that the price will decline, allowing you to buy it back later at a lower price.
What are margin and liquidation?
Margin is the good-faith deposit required to maintain a position. Liquidation is the automatic closure of a trade by the exchange if your account equity falls below the maintenance threshold.
Are perpetual futures settled in USD?
Yes, we only offer USD-settled contracts.
Is futures trading safe for beginners?
Futures trading involves significant risk. Beginners should prioritise education, use risk-management tools like stop-losses and trade with limited position sizes relative to their risk capital.
Important information: This article is provided by Crypto.com for informational and educational purposes only. Nothing contained in this article constitutes, or is intended to constitute, financial advice, investment advice, trading advice, legal advice, tax advice, or any other form of professional advice or recommendation. The information presented herein should not be relied upon as a basis for making any financial, investment, or trading decisions.
Trading perpetual contracts, futures, options, and other derivatives—including the use of margin and leverage—involves a high level of risk and may not be suitable for all users. You may lose all or more than your initial margin, and losses can occur rapidly due to volatility, leverage, or adverse market conditions. The use of leverage amplifies both potential gains and potential losses, and you should not trade with capital you cannot afford to lose. Liquidation may occur if maintenance margin requirements are not met, and funding rates, settlement mechanisms, expiry conditions, or pricing mechanisms may vary between instruments and trading sessions. Past performance is not indicative of future results, and no representation or warranty is made regarding future performance.
Readers should conduct their own independent research and due diligence and consult with qualified financial, legal, or other professional advisors before making any trading or investment decisions. You are solely responsible for evaluating the merits and risks associated with the use of any information, product, or service described in this article.
Cryptocurrency and derivative markets are subject to high volatility, regulatory uncertainty, and operational risks including, but not limited to, exchange outages, smart contract vulnerabilities, counterparty risk, and changes in applicable law or regulation. Product availability and leverage limits are subject to jurisdictional restrictions and applicable Terms and Risk Disclosures. Services, features, and other benefits referenced in this article may be subject to eligibility requirements and may change at the discretion of Crypto.com.
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