A crypto futures contract lets you bet on the future price of a coin without owning the coin itself. You post a small amount as collateral, the exchange amplifies it with leverage, and your gains and losses scale with that multiplier. Higher leverage means a tiny adverse move wipes your collateral. This guide explains every word of that sentence, with a slider you can move to see how it works.
Three ways to trade the same coin. Spot means you actually own the coin. Futures means you bet on its price with leverage and never hold the coin. Options means you pay a premium for the right (not the obligation) to buy or sell at a set price. This article is about futures. The other two are here for context so you know what you are picking from.
A futures contract is an agreement that tracks a coin's price. You do not buy the coin. You open a position on a contract that goes up or down with the coin. The exchange handles settlement in stablecoins (usually USDT or USDC). When you close the position, the difference between your entry price and the current price is your profit or loss.
Two flavors dominate crypto:
Perpetual futures never expire. You can hold a position for hours, days, or months. To keep the contract price tied to the underlying coin's spot price, the exchange runs a funding rate every 8 hours: longs pay shorts when the contract trades above spot, shorts pay longs when it trades below. About 90% of all crypto futures volume is perpetual.
Quarterly (or dated) futures have a fixed expiry - typically every 3 months. They converge to spot at expiry and there is no funding payment. Used more by professional and institutional traders for hedging and basis trades.
As a beginner you will be on perpetuals. That is the default on Binance, Bybit, MEXC, OKX, Hyperliquid and dYdX. Quarterly is a separate tab you can ignore until you understand why you would want it.
These two words get used interchangeably and it costs people money. They are different things.
The slider in the panel above shows this. At 1× you behave like a spot trader - the coin would have to drop close to 100% to liquidate you. At 10× a 10% drop wipes the position. At 100× a 1% drop is enough. Leverage does not make you richer. It makes the same move bigger in both directions.
For beginners the practical range is 3× to 10×. Anything above 25× is for traders who have a tested edge and accept frequent liquidations as the cost of doing business. The exchanges advertise 100× because it sells. It is not what their experienced clients use.
Every futures exchange has three switches that decide how much of your account a single bad trade can take down. Defaults differ by platform, so the first thing to check on a new exchange is which mode you are in.
Recommended starting setup for a new account: isolated margin on every position, reduce-only checked on every SL and TP order, leverage no higher than 10×. Three boxes, one minute, prevents the most common account-wipe scenario.
Perpetual contracts have no expiry, so they need a mechanism to stay close to spot price. That mechanism is the funding rate. Every 8 hours, the exchange checks where the contract is trading relative to spot. If contract > spot, longs pay shorts. If contract < spot, shorts pay longs.
Typical rate is 0.01% per 8 hours (about 11% annualized). When the market gets one-sided, it spikes - 0.05% to 0.1% means longs are crowded and paying expensive rent to stay in. Persistent negative funding means shorts are crowded. We will cover the trading uses of funding rate in a separate guide.
For now, two practical points. First, funding is small over hours but accumulates over days. A 0.1% rate held for a week eats 2.1% of position value. Second, you only pay or receive funding if your position is open at the funding time. Closing 1 minute before avoids the payment, but also costs you a fill.
Liquidation is the forced closure of your position by the exchange. It happens when your margin is no longer enough to cover the open loss. The price at which this triggers is your liquidation price.
Simplified formula for a long position: liquidation distance ≈ 100% ÷ leverage. At 10× leverage, the coin needs to drop about 10% from your entry to liquidate you. At 25× it is 4%. At 100× it is 1%. Real exchanges add a small maintenance margin buffer, so actual distances are slightly tighter than the formula suggests.
When liquidation triggers, the exchange closes the position at market price and you lose the margin you posted (under isolated mode) or a chunk of your wallet (under cross mode). On top of that, the exchange charges a liquidation fee - typically 0.5% to 2% of position size - which is why the actual liquidation hits a cent or two earlier than the formula price. We cover liquidation cascades and how to use a liquidation tracker in a separate article.
A stop-loss (SL) is an order you place to close your position automatically if price moves against you by a set amount. A take-profit (TP) is the same idea in the other direction - close automatically when price hits your target. Both are mandatory for futures. Trading without them is the single fastest way to lose an account.
The rule is simple: set SL and TP before you click open. Most exchanges show two input boxes right next to the leverage selector. Fill them in. Tick the reduce-only box on both. The order placement screen calculates the loss in USDT for the SL and the profit in USDT for the TP - read those numbers and decide if the trade is worth the risk before confirming.
Two practical guidelines. First, SL distance should be wide enough to survive normal price noise (typically 1.5× to 3× the average minute-candle range) but tight enough that liquidation never fires before SL does. Second, TP distance should be at least 2× the SL distance. That way you can be wrong more often than right and still come out ahead.
One trade with real numbers, no hand-waving. Setup: BTC at $60,000, you think it goes up.
Transfer 100 USDT to your futures wallet. Pick BTC/USDT perpetual. Mode: isolated. Leverage: 10×. Direction: long.
Position size = 100 USDT × 10 = 1,000 USDT. That buys roughly 0.01667 BTC of exposure at $60,000. Liquidation price ≈ $54,000 (a 10% adverse move).
Stop loss at $59,400 (−1%). Take profit at $61,200 (+2%). Tick reduce-only on both. Risk-to-reward = 1:2. Loss if SL hits: −10 USDT. Profit if TP hits: +20 USDT.
Click open. Fees on entry: ~0.05% of position size = $0.50. Now wait. The trade resolves itself when price hits SL or TP. No need to watch the chart.
If price hits TP: +20 USDT − $1 fees = +19 USDT (+19% on margin). If price hits SL: −10 USDT − $1 fees = −11 USDT (−11% on margin). With this 1:2 ratio you only need to be right 40% of the time to break even over many trades.
Every futures account that blows up does it through one of these four. The first three are about leverage. The fourth is about not understanding that losses can exceed your initial margin under cross mode.