Bitcoin futures, often referred to as Bitcoin contracts, are powerful financial instruments that enable traders to speculate on the future price movements of Bitcoin without owning the underlying asset. Unlike traditional spot trading, where profits are made solely from buying low and selling high, futures contracts open up opportunities for gains in both rising and falling markets through long and short positions.
This guide dives deep into the two primary types of Bitcoin futures contracts—quarterly (delivery) contracts and perpetual contracts—highlighting their mechanisms, differences, and key features every trader should understand.
Core Concepts of Bitcoin Futures Trading
Before exploring the specific contract types, it's essential to grasp some foundational concepts.
What Are Bitcoin Futures?
Bitcoin futures are standardized agreements to buy or sell Bitcoin at a predetermined price on a specified future date. They allow investors to hedge against price volatility or speculate on market direction.
- Long Position: Buying a contract with the expectation that the price of Bitcoin will increase.
- Short Position: Selling a contract with the expectation that the price of Bitcoin will decrease.
This ability to go long or short provides traders with the flexibility to profit from any market condition.
Types of Bitcoin Futures Contracts
The crypto derivatives market primarily offers two contract structures, each catering to different trading strategies and risk appetites.
Quarterly (Delivery) Contracts
A quarterly, or delivery, contract has a fixed expiry date. On this specified settlement day, the contract is closed, and the position is settled at the contract's price. The pricing for these contracts is entirely market-driven, using the latest transaction price to calculate profits and losses.
Categories of Delivery Contracts
These contracts are typically categorized based on their settlement timeframe:
- Weekly Contracts: Settle on the Friday closest to the trading day.
- Bi-Weekly Contracts: Settle on the second Friday following the trading day.
- Quarterly Contracts: Settle on the last Friday of the nearest quarter-end month (March, June, September, December) that does not conflict with the weekly or bi-weekly settlement dates.
- Bi-Quarterly Contracts: Settle on the last Friday of the second-nearest quarter-end month, avoiding overlap with the other contract expiry dates.
A special rolling mechanism exists to prevent duplicate expiries. In the third-last Friday of a quarter-end month, the existing quarterly contract effectively becomes a bi-weekly contract. At this point, a new bi-quarterly contract is generated instead of a new bi-weekly one, and the existing contracts are rolled forward accordingly.
Perpetual Contracts
Perpetual contracts are an innovative derivative product without an expiry date. Traders can hold a position indefinitely, provided they maintain sufficient margin. The contract price is designed to track the underlying spot price of Bitcoin closely through a unique funding mechanism.
Key Features of Perpetual Contracts
Understanding these mechanisms is crucial for anyone trading perpetual futures.
1. Funding Fee Mechanism
This is the defining feature that keeps the perpetual contract price anchored to the spot market. Instead of expiring, these contracts undergo a funding fee exchange between long and short traders typically every eight hours.
- If the funding rate is positive, traders holding long positions pay a fee to those holding short positions.
- If the funding rate is negative, short positions pay the funding fee to long positions.
- The fee is calculated as:
Funding Fee = Position Value * Funding Rate.
👉 View real-time funding rate tools
2. Linear (USDT-Margined) vs. Inverse (Coin-Margined) Contracts
- Linear Contracts (USDT-M): Quoted and settled in USDT. Both profit, loss, and margin collateral are calculated in USDT, simplifying the calculation process for traders.
- Inverse Contracts (Coin-M): Quoted in USDT but settled in the base cryptocurrency (e.g., BTC). Margin and PnL are calculated in BTC, which can be advantageous for traders who wish to accumulate more of the base coin.
3. Partial Liquidation (Tiered Liquidation)
This risk management feature helps prevent a trader's entire position from being liquidated at once due to a small margin deficit. The system will partially liquidate only the amount needed to bring the margin level back to a safer tier. A full liquidation only occurs if the margin ratio remains insufficient even after reducing the position to the smallest tier.
Choosing the Right Contract for Your Strategy
Your choice between a perpetual and a delivery contract depends on your goals.
- Perpetual Contracts are ideal for short-to-medium-term speculation and hedging without worrying about rolling over expiring contracts. The funding fee mechanism adds an extra layer of strategy.
- Delivery Contracts are better suited for traders with a specific long-term view on price direction by a certain date or those looking to hedge against a known future event.
👉 Explore more advanced trading strategies
Frequently Asked Questions
What is the main difference between perpetual and quarterly contracts?
The core difference is the expiry date. Perpetual contracts have no expiry and use a funding fee to track the spot price. Quarterly contracts have a fixed settlement date on which the position is closed at the contract price.
How is the funding rate calculated?
The funding rate is not a fixed number; it's determined by the price difference between the perpetual contract market and the underlying spot price index. Exchanges calculate it periodically (e.g., every 8 hours) to incentivize traders to push the contract price back toward the index price.
Can I hold a perpetual contract forever?
Technically, yes, as there is no expiry. However, you must maintain adequate margin in your account to avoid liquidation. You will also continuously pay or receive funding fees based on the market's funding rate.
What are the advantages of a USDT-margined contract?
A USDT-margined (linear) contract simplifies calculations because all profits, losses, and margin requirements are in a single, stable currency (USDT). This makes it easier to manage risk and understand your exact PnL in dollar terms.
What does "going long" or "going short" mean?
Going long means entering a buy position, profiting if the market price increases. Going short means entering a sell position, profiting if the market price decreases. Futures contracts uniquely enable easy short-selling.
Is trading Bitcoin contracts riskier than spot trading?
Yes, trading futures contracts involves leverage, which magnifies both potential profits and potential losses. It is considered a higher-risk activity suitable for experienced traders who understand leverage and risk management principles.