A futures contract is an agreement to exchange the difference between today's price and a future price. You never own the coins — you own a position whose profit and loss tracks the coin's price. In crypto, the dominant instrument is a special variant: the perpetual swap (“perp”), which most of the volume on every major derivatives exchange runs through.

Perpetuals: futures that never expire

A classic futures contract has a settlement date. A perpetual doesn't — you can hold the position indefinitely. But without settlement, what keeps the contract's price glued to the real (spot) price of the coin? The answer is the funding rate: a small payment exchanged directly between traders, typically every 8 hours.

  • When the perp trades above spot (crowd is long), longs pay shorts — holding a long costs money, which pushes the premium back down.
  • When the perp trades below spot, shorts pay longs — the mirror case.

The numbers are small per interval but compound. Example: a 12,000 USDT position at a funding rate of +0.01% per 8 hours pays 1.20 USDT three times a day — roughly 11% a year if the rate persisted. In heated markets funding can run many times higher. For any position held longer than a few days, funding is a real cost (or income) that belongs in your math.

Leverage and margin, with real numbers

Futures are traded on margin: you post collateral, and the exchange lets you control a larger position. Three numbers matter:

  • Notional — the full size of your position (say, 1,000 USDT of BTC).
  • Margin — your collateral (100 USDT at 10x leverage).
  • Maintenance margin — the minimum collateral the exchange requires to keep the position open (often 0.5–1% of notional).

If the market moves against you far enough that your collateral approaches the maintenance requirement, the exchange forcibly closes the position — liquidation. At 10x leverage, a move of roughly 9–10% against you wipes out the collateral; at 50x, about 2%. Bitcoin can move 2% in an hour on an active day. That is the whole story of why high leverage and crypto volatility are a destructive combination.

Two margin modes exist: isolated (only the margin assigned to that position is at risk) and cross (your whole futures balance backs all positions — harder to liquidate, but a single runaway position can drain the account).

Mark price vs last price

Exchanges do not liquidate you on the last traded price of their own order book — that would let a single aggressive order cascade liquidations. Instead they compute a mark price from an index of several exchanges' spot prices. Your unrealized PnL and liquidation trigger follow the mark price. It is a protection, but not a perfect one: in violent moves, index sources themselves gap.

Linear vs inverse contracts

Linear (USDT-margined) contracts are collateralized and settled in a stablecoin — PnL is in dollars, easy to reason about. Inverse (coin-margined) contracts use the coin itself as collateral — your collateral's dollar value falls exactly when your long position loses. Nearly all retail activity today is in linear contracts, for good reason.

The honest part

Leverage does not improve your odds — it multiplies the size of a bet whose expected value it does not change, while adding a new way to lose: path dependency. You can be right about the direction and still get liquidated by a temporary swing along the way. Once liquidated, being “eventually right” pays you nothing.

Regulators who have measured retail derivatives outcomes consistently find that a large majority of accounts lose money. Crypto perps — more volatile, open 24/7, with higher leverage available — have no reason to be an exception. If you use these instruments, position sizing and stop-losses are not optional extras; they are the entire game.

What futures are legitimately good for

  • Shorting. Spot only lets you profit from rises. Futures make downside a tradable direction — essential for any symmetric strategy.
  • Hedging. Holding coins long-term but fearing a drawdown? A short futures position offsets it without selling the coins.
  • Capital efficiency. Modest leverage (2–3x) lets a strategy deploy capital across more positions with the same account — if risk is capped elsewhere.

The mechanics of where these orders actually go — order books, matching, liquidation engines — are covered in how crypto exchanges work.