Bitcoin futures trading

Trading Bitcoin futures enables you to bet on the direction of its price. If you want to bet on the price to rise, you go "long" and if you want to bet on the price to fall you go "short."

When you buy a Bitcoin futures contract, what you're actually purchasing is an agreement to buy or sell a certain amount of Bitcoin at a specified time in the future.

By doing this, you can profit from correctly betting that the price of Bitcoin will go up, which is called going long, or profit from correctly guessing that the price will go down, which is called going short.

You'll also lose money if the price of Bitcoin goes in the opposite direction you expected. And if you're using leverage, you can lose a lot more than just your initial investment. This can make it a high risk strategy and generally suited to more advanced traders.

This guide will explore the basics of trading Bitcoin Futures, some of the exchanges you can use, as well as highlight the risks involved.

Exchanges where you can trade Bitcoin futures

Platforms that offer cryptocurrency futures trading in Australia are still fairly limited. Currently, to trade futures through an Australian licensed platform you'll need to qualify as a wholesale client — you can check out your options in the table below.

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Product	Deposit methods	Fiat currencies	Cryptocurrencies	Offer	Disclaimer
Kraken Finder Award	Bank transfer, Cryptocurrency, PayPal, PayID	8	403			Go to siteView details Compare	loading Fetching your data...
OKX	Bank transfer, Cryptocurrency	1	285			Go to siteView details Compare	loading Fetching your data...

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How Bitcoin futures trading works

• Let's say you open a futures contract to buy 1 Bitcoin at a value of $130,000 at a set time in the future, say June 1
• If on June 1 (the date of expiry) Bitcoin reaches $135,000, then you've just made a $5,000 profit
• But if Bitcoin drops to say $128,000, you've lost $2,000

Most of the time, traders will close out contracts ahead of the expiry date so they can realise profits or to minimise losses if prices aren't going in their favour.

You'll typically be able to keep track of your "realised profits" or "realised losses" on an ongoing basis through your exchange, which is an approximation of how much you would gain or lose if you were to close a contract at the current time. This is similar to watching your balance rise and fall as the market does.

Some of the factors which will affect how your realised profits and losses move are:

• Contract size. The contract size is simply how large each contract is. For example, if you bought a thousand contracts, each of which was equivalent to $1, you'd have $1,000 in the market. Sometimes contracts are valued in BTC or another cryptocurrency, and sometimes they're valued in dollars or other fiat currencies.
• Long or short? Short contracts mean your balance will rise as Bitcoin prices fall and fall as Bitcoin prices rise, while long contracts mean your balance will rise when Bitcoin prices do and fall when Bitcoin prices do. You can simultaneously have multiple contracts of different types which can offset each other.
• Leverage. Functionally, this magnifies how much your balance rises or falls when the markets move. If you're using 100x leverage on a contract, your balance will rise or fall 100x faster than normal for the size of that contract. 100x is typically the highest leverage an exchange will offer and you can have different leverage on different accounts.
• Expiration date. This is the date at which a contract is automatically closed and settled up. You can generally sell your contracts and pocket the gains or losses at any time, but when there's an expiry date, that's when the futures will close. They can sometimes be extended and many exchanges will also offer "perpetual contracts" which don't have any expiry date.

How to trade a Bitcoin futures contract

Here's a step by step guide to help you trade your first Bitcoin futures contract:

1. Sign up to an exchange that offers futures trading.
2. You'll then need to open a Futures trading account with the exchange. You may need your phone with you to complete this process, as the platform might send you a code before you can access your account.
3. Next, ensure you already have purchased and stored your desired currency in a wallet. Once done, you can then transfer these assets to your futures account. These funds can then be used as collateral or margin.
4. Select the type of futures contract you want to purchase. You might be offered the option of stable margined contracts, meaning that they will not be influenced by price fluctuation. Conversely COIN-Margined Contracts are subject to BTC price fluctuation.
5. Now you can choose the leverage for your BTC futures contract. Higher leverage carries a higher liquidation risk, thus you should be mindful about the leverage of use. For example, 100x is considered extremely high risk and only for experienced traders – your capital is at risk.
6. After selecting the leverage, you can input your desired investment amounts into the relevant fields and decide on your position – long (BTC's price will rise) or short (BTC's price will fall).
7. Finally, decide on the type of order you wish to execute. Two of the basic order types are buy-limit and stop-market order. Other types of orders include stop-limit, buy-market, take-profit limit, take-profit market, and trailing stop, among others.
8. Track the performance of your contract — you should already know at which price points you plan to close out the contracts, whether to realise profits or minimise losses.

What is futures trading used for?

Beyond speculation, futures trading can also be used as a risk management tool and a way of playing the market in more depth.

Futures contracts can be used to multiply profits, mitigate risks, and profit from falling prices. They can also be a very quick way of losing money if you get liquidated, which can happen very quickly when using 100x leverage.

Bitcoin futures liquidation and collateral

When you're trading futures without leverage, the value of your futures contracts just rises and falls with the crypto markets as usual, according to your open contracts.

But when you're using leverage, the money used to buy a contract serves as collateral and you're essentially trading on borrowed money.

Just like leverage can help you quickly make more money on correct bets, it can also be a very fast way of losing all your funds on incorrect bets. If the markets go the wrong way, you can lose your entire deposit.

For example, if you're trading with 100x leverage, then a price change of just 1% could be enough to wipe out all your collateral and trigger liquidation.

Different exchanges will often have different liquidation thresholds. For example, some might close your orders once you've lost at least 80% of your collateral, and account for fees in different ways.

What are the fees for future trading?

A range of fees may apply, including:

• Trading fees. There will typically be a commission fee for buying and selling futures contracts, similar to buying or selling cryptocurrency outright.
• Extension fees. Fees may apply for extending a contract past its usual close date.
• Overnight fees. Fees may apply when contracts open through certain time periods.
• Interest payments. When you margin trade, you're borrowing money to leverage your trades. There will often be a cost for actually borrowing that money.
• Deposit and withdrawal fees. You might have to pay fees for transferring money in or out of an exchange.

Where can I trade Bitcoin futures?

You can trade Bitcoin futures over some dedicated crypto exchanges, although in Australia your options are limited. To date, there are just a couple of Australian licensed exchanges that offer futures trading — OKX and Kraken — and it's still only available to wholesale clients.

Some traditional stock trading platforms now also offer Bitcoin futures over the CME exchange, as do some forex trading platforms in the form of contracts for difference (CFDs).

Is Bitcoin futures trading safe and regulated?

Bitcoin futures trading is never safe. The markets are prone to manipulation and unpredictable price movements. You can do everything right and still lose money. Some exchanges are also safer than others, depending on how reliable, regulated, and legitimate it is.

How well regulated an exchange is depends largely on where it's based. Some are largely unregulated, while others such as CME and Cboe are relatively tightly regulated.

Risks of trading Bitcoin futures

While the potential to make profits through the trading of Bitcoin futures is immense, there are several downsides also that you need to consider before you delve into this financial instrument. A few of these factors are listed below that should keep in mind:

• Regulations. Regulatory bodies don't often have a clear stance on derivative products based on underlying crypto assets yet. In Australia, your safest option is to go with an exchange that is registered as a Digital Currency Exchange (DCE) with AUSTRAC.
• Not suitable for all investors. Bitcoin futures are not simple in nature, they are complex financial instruments that a beginner investor might find difficult to wrap their head around.
• Losses not limited to funds deposited. Since futures contracts are usually margin products, the losses (and the gains) are usually amplified. You stand the chance to lose your entire investment but not just that, it goes beyond that. Your losses are not limited to the equity and funds in your account while trading. In case of a huge loss, you may be required to pay up additional funds to cover the losses as your legally liable to do.
• Volatility. Bitcoin despite being the flagship cryptocurrency is an extremely volatile asset. Due to this, there have been times when the asset fluctuated by more than 20% in a single day which is much higher than what traditional equities and commodities markets traders are used to.
• Influence on spot markets. In the traditional financial markets, futures are usually considered to be the indicators of price thus contributing to the volatility of the underlying asset. But since the size of the crypto futures market is currently limited to being a fraction of the spot markets, the influence is limited as well. Although as the market grows, so will its influence of spot markets as seen in traditional futures markets where the size of the futures market is several times the size of the spot markets.

Pros and cons of Bitcoin futures trading

Compared to simply buying and selling Bitcoin, futures trading has some benefits and drawbacks.

Pros

• It lets you speculate on Bitcoin prices without owning Bitcoin
• You can bet on either direction of the price volatility of Bitcoin
• You are able to apply leverage to multiply risks and potential returns
• Can be used to hedge against unexpected price moves

Cons

• Cannot be used to buy Bitcoin, except where trades are settled in BTC rather than USD
• More complicated and difficult than simply trading Bitcoin
• Highly risky compared to hodling Bitcoin
• Bitcoin markets are unpredictable and prone to manipulation, which can lead to liquidation
• It is a market for sophisticated traders and speculators

Frequently asked questions

• What are perpetual swaps?

  Perpetual swaps are a type of futures contract created specifically for cryptocurrency. As the name suggests, these contract types are indefinite without any set expiry date.

• How do futures contracts pay out?

  Depending on the contract, profits may be realised in either Bitcoin or the fiat currency equivalent.

• Do I have to own any Bitcoin to trade Bitcoin futures?

  It depends on the platform. Some will let you simply trade contracts which track Bitcoin prices with fiat currency deposits, while others will require you to deposit Bitcoin collateral.

Written by

Andrew Munro

Editor

Andrew Munro was the global cryptocurrency editor at Finder. During his time he covered all aspects of cryptocurrency and the blockchain. Before he became cryptocurrency editor, he was a content writer for Finder covering various topics over his nearly 5 years in the role. Prior to joining Finder he was a web copywriter. Andrew has a Bachelor of Arts from the University of New South Wales. See full bio

Co-written by

Kylie Purcell

Investments Analyst

Kylie Purcell is an experienced investments analyst and finance journalist with over a decade of expertise in a wide range of financial products, including online trading platforms, robo-advisors, stocks, ETFs and cryptocurrencies. She is a sought-after commentator and regularly shares her insights on the AFR, Yahoo Finance, The Motley Fool, SBS and News.com.au. Kylie hosts the Investment Finder video series and actively contributes to the investment community as a judge and panellist. She holds a Master of Arts in International Journalism, a Graduate Diploma in Economics, and ASIC-recognised certifications in securities and managed investments. See full bio

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Kylie has written 150 Finder guides across topics including:

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