How to trade crypto futures

Crypto futures trading has become extremely popular in recent years, with volumes exceeding $58.5 trillion in 2024—more than double the 2023 figure. 

Futures allow traders to speculate on digital assets without needing to own the underlying assets. This article covers key topics such as: 

• What is a futures contract? 
• How futures contracts work
• The popular types of contracts used in crypto 
• How crypto traders use them
• A step-by-step guide on how to trade crypto futures at Kraken 

Understanding how these instruments work as well as the benefits (and risks) attached will help you safely incorporate them into your overall trading strategy. 

Crypto futures allow traders to speculate on the future price of digital currencies, enabling traders to realise a gain when the price of an asset goes up or down. 

A futures contract involves an agreement between two parties to buy or sell an asset at a set price on a predetermined future date. The price of a futures contract is influenced by the spot price of the underlying asset, but traders don’t need to own the cryptocurrency to participate. 

Key components of futures trading include:

Futures contracts are traded on margin, meaning traders can control a large position with a relatively small amount of capital.

Using leverage, a trader can amplify potential profits as well as losses. Each position requires an initial margin to open, and traders must maintain a maintenance margin, which is the minimum equity required to keep the position open. If the account balance falls below this level due to adverse price movements, the trader will receive a margin call, requiring them to deposit additional funds.

Failing to meet the margin call can result in liquidation, where the exchange forcibly closes the position to prevent further losses. Even a small fluctuation in price can trigger these events, highlighting the importance of careful risk management when using high leverage leverage.

Futures contracts specify the size of the position and the expiration date, with most crypto futures contracts being settled in USDT (Tether). This means traders never need to take possession of the actual cryptocurrency. Instead, they settle the contract with a USDT payment based on the difference between the contract price and the market price at expiry or when closed.

Crypto futures are zero-sum contracts (or negative sum if you take into account trading fees). This means that one trader’s profit is equal to the other trader’s loss.

If you bet on the price of an asset increasing (known as ‘going long’) and the market moves in your favor, you earn the difference between entry price and closing price. Conversely, if the market moves against you, you may incur a loss. 

Crypto futures are used by traders for various purposes, from speculation to hedging. Below are the most common ways traders use them:

The most common use of futures contracts is speculative trading. Traders can enter long positions (betting the price will rise) or short positions (betting the price will fall). Leverage enables traders to more extensively take advantage of the inherent volatility in cryptocurrency markets. 

While using leverage requires careful risk management to avoid ruinous losses, it does enable futures traders to make efficient use of their capital by allowing for multiple positions across multiple assets simultaneously (not that that is necessarily advisable). 

One of the often overlooked benefits of futures is that it allows traders to reduce counterparty risk.

For example, if a trader has $10,000 at their disposal, using 10x leverage with only just a $1,000 deposit for collateral, they can open positions that notionally match (or exceed with higher leverage) their full balance.

This is advantageous because it allows traders to mitigate the risk of a platform becoming insolvent or refusing to honor a withdrawal, by limiting the amount of capital left on any trading venue at any given moment.

Trading crypto futures can help diversify a portfolio of digital currencies. By using futures contracts to speculate on different assets, traders can expand their exposure beyond traditional spot markets.

Because of their ability to not just expand the number of assets traders can gain exposure to, but also the way they gain explosure to those assets, futures can help traders effectively diversify their portfolios and more proactively manage risk. 

Unlike traditional futures contracts, which have a set expiration date, perpetual futures can be held indefinitely, offering greater flexibility and higher liquidity. These contracts are particularly popular in crypto markets because they are easy to grasp, and allow traders to open a position and keep it open for as long as they wish, provided they maintain the necessary margin. 

Perpetual futures are similar to spot trading but with the added benefit of leverage, allowing traders to gain exposure without having to roll over positions. To keep the price of the perpetual futures contract in line with the underlying asset, exchanges use a funding rate system. Here, a periodic fee is exchanged between traders who are long and those who are short. If the futures price is higher than the spot price, long position holders pay short position holders, and vice versa. This encourages arbitrage traders to open opposing trades to collect fees and help bring perp prices back into alignment with the market.

The funding rate can be positive or negative, and impacts the cost of holding a position over time. Additionally, because these contracts can be traded indefinitely, they tend to have higher liquidity, making it easier for traders to enter and exit positions quickly, especially in volatile markets.

Whether you’re a seasoned veteran or someone who’s interested in opening their first futures position, Kraken Pro makes it easy to trade a wide range of crypto futures and perpetual contracts.

While contracts and trading pairs can vary by region, Krak

Sign up on Kraken and complete identity verification. Enable derivatives trading for your account.

Move funds from your Holding wallet to your Kraken Futures wallet to use as collateral for trading. Only the funds in your Futures wallet are affected by trading activity, while the funds in your Holding wallet remain unaffected. Your potential losses are limited to the amount you deposit into your Futures wallet.

Select the crypto futures market and contract you want to trade (Kraken offers monthly, quarterly and perpetual). Perpetual futures or ‘perps’ have no expiration date, allowing you to hold the position as long as you maintain your margin.

Select your desired leverage. The amount in your account multiplied by your leverage determines the total position size. Kraken calculates your maintenance margin, so you must maintain a minimum equity level to avoid liquidation.

Choose whether to go long (buy) or short (sell) and place a market or limit order. Kraken will display your estimated liquidation price based on your leverage and position size. If you are entering at the market, consider your position size relative to the order book depth to determine the potential for any slippage.

Track price movements and your unrealized profits or losses. Ensure your margin level stays above the maintenance margin to avoid margin calls or liquidation.

Consider setting stop-loss and take-profit levels may help to protect your invested capital. Be aware of funding rates on perpetual contracts, as these are periodic payments exchanged between long and short position holders.

Close your position using a ‘reduce only’ market or limit order. Your realized profit or loss is calculated as the difference between your entry price and exit price, minus fees and funding payments.

• Leverage magnifies both gains and losses: Using leverage increases the size of your position relative to your collateral. While this allows for higher potential profits, even small price movements against your position can lead to significant losses.
• Margin level is critical: Your margin level is the ratio of your equity to your used margin. Keeping your margin level above the maintenance requirement is essential to avoid margin calls or forced liquidation.
• Price movements affect liquidation risk: If the market moves against your leveraged position, your equity decreases. If it falls below the maintenance margin, Kraken may issue a margin call or automatically liquidate your position to prevent further losses.
• Maintenance margin protects the platform: The maintenance margin is a minimum equity threshold required to keep a position open. It ensures that losses never exceed the collateral you’ve deposited. Unlike some traditional brokerages, Kraken does not allow traders to go into negative equity (owing the platform money). 
• Funding rates impact profitability in perpetual contracts: Long or short positions may pay or receive periodic funding fees depending on the market conditions. These can add to or slightly reduce your profit over time.
• Position monitoring is key: Active monitoring of both the underlying asset price and your margin level is essential, especially during volatile markets. Adjust leverage, position size, or stop-loss levels as needed to manage risk.
• Interplay of price, leverage and margin: The higher your leverage, the smaller the adverse price movement needed to trigger liquidation. Conversely, maintaining more collateral reduces liquidation risk, but ties up capital that could be deployed elsewhere.
• Leverage changes as the market moves: When your position gains value, your equity rises relative to your borrowed margin, effectively reducing your leverage and making the position less risky. Conversely, if the market moves against you, your equity falls relative to your borrowed margin, increasing your effective leverage and the risk of liquidation.

A trader deposits 1,000 USDT as collateral and opens a long BTC/USDT futures position with 5x leverage. This means they control a 5,000 USDT position. The maintenance margin is 10 percent, so they need at least 500 USDT in equity to avoid liquidation. Collateral is the actual funds deposited to support the position, while margin is the minimum equity required to keep the position open.

In this example, Bitcoin is trading at 30,000 USDT when the trade is opened. If the price drops by 20 percent to 24,000 USDT, the position loses 1,000 USDT. Since this wipes out the trader’s collateral, the position is liquidated.

This shows how leverage magnifies losses and how margin and collateral protect the exchange from bigger losses.

Crypto futures offer powerful opportunities for traders, combining speculation, leverage and portfolio diversification. However, the amplified risks from leverage and volatile markets require careful planning, active monitoring and strict risk management.

Understanding margin, collateral, funding rates and liquidation mechanisms is crucial to trade safely and effectively. When used wisely, futures can complement a broader trading strategy, but they are not without significant risk, especially in highly leveraged positions. 

Platforms like Kraken provide a secure, transparent and reliable way to trade a variety of crypto and traditional futures contracts.

While futures come with their own unique benefits and risks, they are the backbone of the global commodities market. Sign up for your free Kraken Pro account today to make futures part of your crypto strategy.