Futures are derivative contracts that represent an agreement to transact the underlying asset at a date and time in the future. With futures, a trader can gain exposure to an asset's price movements without the need to own it.
Below are answers to the most frequently asked questions on the basics of futures trading:
- Futures allow benefiting from price increases as well as declines
- Futures provide financial leverage
- Futures can be used to hedge price risk
- Futures are associated with low transaction fees
However, trading futures, derivatives and other instruments using leverage involves an element of risk. The value of futures you enter into may fall as well as rise and you may get back less than your initial collateral, and in some cases you may lose your entire collateral balance.
Futures come with a perpetual, monthly, quarterly and semiannual* maturity schedule and can utilise Single-Collateral or Multi-Collateral wallets with isolated or cross margin. We offer both inverse and linear contracts.
For detailed information on listed contracts, see:
- Inverse Crypto-Collateral Perpetual Contract Specifications
- Linear Multi-Collateral Perpetual Contract Specifications
- Inverse Crypto-Collateral Fixed Maturity Futures Contract specifications
*Semiannual contracts for FI_BTCUSD and FI_ETHUSD only
Note: The symbol XBT is used for Bitcoin for logs download and Futures API
For example, in Bitcoin-Dollar, because you are using Bitcoin as collateral and the contract is denominated in USD, as the price falls, the payout in Bitcoin has to be higher to match the Dollar value. This means that if the Bitcoin-Dollar price goes up 10% your payoff is 9.09% and if it goes down 10% your BTC payoff is 11.1%.
For example, with a Bitcoin-Dollar linear futures contract the profit or loss from a price increase or decrease is directly equal to the dollar increase or decrease of the contract itself. If you hold a long and the price increases by 10% your profit will be 10%, if you are short and the price goes down 10% your profit will be 10%
Multi-Collateral futures allow trading a wider variety of trading pairs with multiple assets as collateral. Similar to margin trading on Kraken’s spot exchange, your positions can be supported by cash, cryptocurrencies or stablecoins.
You believe that the price of Bitcoin will increase against USD and buy 100,000 Bitcoin-Dollar (PI_BTCUSD) futures at 35,000 USD per Bitcoin. Single-collateral inverse futures have a contract size of 1 USD. The price of Bitcoin actually increases and you are able to sell the Futures at 40,000. Your PnL is calculated as:
( 1 / Entry Price - 1 / Exit Price ) * Position Size
(1 / 35,000 - 1 / 40,000) * 100,000 = 0.3571428571 BTC
Example Linear Futures:
You believe that the price of Solana will increase against USD and buy 1,000 Solana-Dollar (PF_SOLUSD) futures at 85 SOL per USD. Multi-collateral linear futures have a contract size of 1 base unit, in this case 1 SOL. The price of Solana actually increases and you are able to sell the futures at 105. Your PnL is calculated as:
( Exit price - Entry price ) * Position Size
(105 - 85) * 1,000 = 20,000 USD
The respective venues where the contracts are listed have discretion over whether any offer to buy or sell is successfully accepted, matched or executed and it may choose at its discretion to refuse an order and such refusal is notified to you. This is to ensure that trades do not lead to market manipulation or other unfair circumstances.
Not in the same manner as other crypto futures exchanges. Our Equity Protection Process and Position Assignment System ensure liquidations never lead to negative balances without requiring an insurance fund or claw-backs.
If you buy, we match you with a seller and if you sell, we match you with a buyer. If you make a profit, this profit will come from other traders' losses on the platform. As a neutral exchange, we manage the margin of counterparties in real-time and transfer any profit and loss. If a liquidation can not be filled, it goes through an orderly unwinding process that attempts to first assign it to a market maker and then terminate to avoid system losses as last resort. Thus, the risk management system is designed to not sustain losses that would require schemes like "claw-back".
For help understanding futures terminology, see Futures Trading Glossary.
If you require further assistance with understanding the concepts and terminology of futures trading, contact us now. Our expert support team is always happy to help.