Crypto futures are a popular way to trade crypto assets, enabling traders and investors to take leveraged positions in bitcoin and other cryptocurrencies without having to own the underlying asset. Read on to learn what crypto futures are, how they work, and how you can use them to trade crypto. A futures contract is a legal agreement between two parties to purchase or sell a specific asset at a fixed price at a particular time in the future.

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To ensure that, crypto derivatives exchanges put an anchoring system for pricing known as the funding rate mechanism. This system creates a balance by assigning incentives to traders to increase or decrease their demand for long or short positions in the perpetual swap contract. Through the help of the funding rate mechanism, perpetual swaps trade very close to the spot price of their underlying cryptocurrency, which is another reason why seasoned crypto traders are generally fans of trading perpetual contacts.

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That way, the cocoa producer knows exactly how much they will sell their harvest for, regardless of whether cocoa prices will fall or rise. Today, futures are also used to speculate on a wide range of assets, including cryptocurrencies, as futures contracts enable traders to speculate on the price movement of an asset without having to own the underlying. Also, futures enable traders to use leverage to potentially increase their earnings.

Beginners will likely get burned trading futures, especially when deploying leverage in an attempt to increase their potential profits. The CME offers a wide range of cryptocurrency futures, enabling US investors to gain exposure to bitcoin without having to own the underlying asset. Bitcoin futures are only used for heading and speculating. Let’s take a look at five of the most popular cryptocurrency futures trading platforms. If you buy a Bitcoin futures contract you don’t actually own bitcoin, which means you don’t have self-custody of “your” coins and you can’t use them to make payments. The leading derivatives exchange is regulated.