What Are Futures in Trading? A Complete Guide for Crypto Exchanges, Bitcoin Exchanges, and Traditional Markets

If you are exploring crypto exchanges or bitcoin exchanges and keep seeing the term futures trading, you are not alone. Understanding what are futures in trading is essential for anyone who wants to manage market risk, speculate on price movements, or hedge portfolios in the stock market, commodity markets, currency markets, and crypto markets. This guide explains how a futures contract works, how futures markets are structured, how to open a futures account, and how futures trading works on both traditional futures exchange venues like the Chicago Mercantile Exchange and on modern crypto trading platforms.

On www.bestcryptoexchanges.com, we focus on helping you evaluate trading platforms and build a plan to start trading futures responsibly. Futures markets offer powerful tools, but investments involve risk and futures trading requires discipline, risk controls, and a solid understanding of contract specifications, margin, and market volatility before you place any futures transactions.

Definition: What Are Futures in Trading?

A futures contract is a standardized financial contract that obligates the buyer and seller to transact an underlying asset at a predetermined price on a future date. The underlying asset can be a commodity like crude oil, a stock index such as the S&P 500 (equity index futures or stock index futures), a currency pair (currency futures), a government bond (interest rate futures), or a digital asset such as Bitcoin on regulated bitcoin exchanges or crypto exchanges. Futures are exchange traded on centralized venues known as a futures exchange, where the clearinghouse guarantees performance and reduces counterparty risk with a performance bond mechanism known as the futures margin.

Trading futures allows participants to buy or sell a specific contract size of an underlying asset at a fixed price for delivery or cash settlement by the expiration date. Unlike stock trading where you own shares, a futures position represents an obligation. Depending on the contract specifications, the futures position may end with physical delivery of the underlying asset or with cash settlement at the current market price on the expiry date.

Why Traders Use Futures: Hedging, Speculation, and More

Futures transactions serve multiple objectives across financial markets:

• Hedging market risk: Farmers hedge commodity futures to lock in a predetermined price for crops. Equity funds use stock index futures to hedge a portfolio’s beta to market sentiment. Bitcoin miners and crypto funds may sell futures contracts on bitcoin exchanges to protect against downside in the current price of BTC.
• Speculation on price movements: Futures traders can go long or short efficiently with leverage, seeking to profit from expected changes in futures prices or the market value of an underlying asset without paying the full purchase price upfront.
• Arbitrage and basis trading: Market participants exploit differences between current market price and futures prices driven by interest rates, storage costs, dividends, and convenience yields, or between exchange traded markets on different venues.
• Price discovery and liquidity: Because futures markets concentrate global trading activity and standardized contract value, they provide deep liquidity and transparent pricing for financial instruments across trading hours.

How a Futures Contract Works: The Building Blocks

Every exchange traded futures contract comes with clear contract specifications so that all market participants know exactly what is traded. Key specs include:

• Underlying asset: The instrument the contract references, such as crude oil, a stock index, a currency, interest rates, or Bitcoin.
• Contract size and notional value: The standardized quantity per contract. Notional value equals contract size multiplied by the current market price.
• Tick size and tick value: The minimum price increment and the monetary value of each tick movement, which directly impacts profit and loss.
• Expiration date and expiry date: The future date when the contract stops trading and is settled by physical delivery or cash settlement at the market price.
• Settlement method: Physical delivery versus cash settlement. Many equity index futures and currency futures use cash settlement. Commodity futures such as certain crude oil futures contracts may involve physical delivery.
• Trading session and trading hours: Each futures exchange lists specific sessions for electronic and pit trading, though many crypto exchanges operate 24/7.

Examples: Equity Index, Crude Oil, Interest Rate, Currency, and Bitcoin Futures

Equity index futures and stock index futures

Stock index futures such as the E-mini S&P 500 or Nasdaq-100 on the Chicago Mercantile Exchange allow traders to express bullish or bearish views on the broad stock market with a single instrument. A portfolio manager can sell futures contracts to hedge an index-weighted portfolio for a short period without liquidating the underlying asset holdings.

Commodity futures

Commodity futures include energy, metals, and agriculture. A crude oil futures contract lets refiners or airlines hedge fuel costs months ahead at a predetermined price. Producers can sell futures to lock in revenue, while speculators trade crude oil price volatility with leverage.

Interest rate futures

Interest rate futures reference Treasury securities or interbank rates. Banks and asset managers hedge interest rates exposure on bond portfolios. Because interest rates alter the cost of carry and the fair value of futures, these contracts are central to managing fixed-income risk.

Currency futures

Currency futures quote the exchange rate between major currencies. Corporates hedge foreign revenue and expenses, while traders speculate on currency trends with transparent, exchange traded pricing.

Crypto and Bitcoin futures

Bitcoin futures are listed on the Chicago Mercantile Exchange and are also widely available on leading crypto exchanges and bitcoin exchanges. On regulated venues, contracts are standardized with cash settlement and a central clearinghouse. On crypto platforms, you will also find perpetual futures (perpetual swaps) with no expiration date. These use a funding rate mechanism rather than a fixed expiration date to keep the futures price near the current price.

Futures Pricing: From Spot to Futures Prices

The relationship between the current market price (spot) and futures prices is governed by cost of carry. Under fair value models, a futures price equals the current price adjusted by financing costs, interest rates, dividends or yields, storage, and convenience yield until the future date. This leads to familiar patterns:

• Contango: Futures prices above spot due to positive carrying costs or higher interest rates.
• Backwardation: Futures prices below spot due to scarcity or negative carry.

For stock index futures, dividends and interest rates shape the fair value. For commodity futures such as crude oil, storage and convenience yield dominate. For bitcoin futures, the funding environment on crypto exchanges and the demand to go long or short affects the basis. Understanding these drivers helps futures traders assess whether to buy or sell and identify basis opportunities.

Margin, Leverage, and Risk: How Futures Trading Works at the Account Level

Futures trading requires posting a performance bond rather than paying the full purchase price. Your margin account holds collateral that covers potential daily losses. Core terms include:

• Initial margin requirement: The minimum collateral to open a futures position.
• Maintenance margin: The level below which a margin call is triggered.
• Margin call: When losses reduce equity below maintenance, you must add funds or the brokerage account may liquidate positions.
• Futures margin and leverage: Because the initial investment is a fraction of the notional value, leverage magnifies both gains and losses.

Example: If a futures contract has a notional value of 100,000 and an initial margin of 5,000, a 1 percent move in the market value equals 1,000 profit or loss, which is 20 percent of the initial margin. This illustrates why trading futures requires a robust risk management plan, stop losses, and appropriate trading capital relative to volatility.

Different exchanges, including the Chicago Mercantile Exchange and various crypto futures platforms, set initial margin and maintenance margin based on market volatility and contract specifications. Your brokerage account or crypto margin interface will display current margin requirements and may implement a minimum account balance above exchange rules to control risk.

Order Types, Trading Sessions, and Platforms

Futures traders place orders through a trading platform connected to a futures exchange or a crypto derivatives venue. Common order types include market orders, limit orders, stop orders, and take-profit orders. Trading hours vary:

• Traditional equity index futures often trade nearly 24 hours electronically during the business week, with scheduled maintenance breaks and specific trading session windows.
• Commodity futures sometimes have distinct day and overnight sessions.
• Crypto futures on bitcoin exchanges trade 24/7, appealing to global market participants and stock and options traders who want continuous risk management.

Cash Settlement vs Physical Delivery

Futures contracts end in one of two ways on the expiry date or prior for closed positions. Cash settlement means the exchange computes profit and loss against the current market price at expiration, crediting or debiting the margin account. Physical delivery means the seller must deliver and the buyer must accept the underlying asset per contract specifications. Many financial derivatives such as stock index futures use cash settlement, while certain commodity futures may allow or require physical delivery. Learn the rules before you start trading futures to avoid unexpected obligations.

Futures on Crypto Exchanges and Bitcoin Exchanges

Crypto exchanges and bitcoin exchanges provide a wide range of futures contracts beyond CME-listed products. Key features include:

• Perpetual futures versus fixed-expiry futures: Perpetuals have no expiration date, instead using periodic funding rates to tether the contract value to the current market price.
• Leverage options: Platforms may offer high leverage, but higher leverage increases market risk and the chance of liquidation when the market moves against your futures position.
• Collateral choices: Some exchanges allow collateral in stablecoins or the underlying asset, affecting liquidation thresholds and margin calls.
• Trading activity and liquidity: Major bitcoin exchanges like those known for deep order books typically offer tighter spreads, but volatility can still cause slippage.

Always check the futures exchange rules on your platform, including minimum account balance, trading fees, funding mechanics for perpetuals, and the risk engine rules that manage maintenance margin and liquidation. For regulated products in the United States, the Commodity Futures Trading Commission oversees market integrity and enforces rules across registered venues and clearinghouses, while many crypto-native platforms are offshore with different regulatory regimes.

Opening a Futures Account and Starting to Trade

Before you start trading futures, you need the right infrastructure and a clear trading plan. Steps include:

• Open a brokerage account with futures permissions or a dedicated futures account with a broker that connects to major futures exchange venues like the Chicago Mercantile Exchange.
• If focusing on digital assets, choose reputable crypto exchanges or bitcoin exchanges that offer robust security, transparent contract specifications, and strong risk controls.
• Complete disclosures and suitability questionnaires because investments involve risk. You will review statements on leverage, market volatility, and the risks involved in futures transactions.
• Fund your margin account with sufficient trading capital to meet initial margin and maintenance margin requirements with a buffer for drawdowns and potential margin calls.
• Select a trading platform with the tools you need: charts, depth of market, risk controls, and API connectivity if you automate trading activity.
• Define a trading plan with entry signals, exit rules, a position sizing framework, and daily loss limits. Align risk per trade with overall account equity to reduce the chance of forced liquidation.

Contract Sizing and Notional Value: Right-Sizing Your Risk

Choosing the correct contract size is crucial. Mini and micro futures contracts exist on many futures exchanges to help traders manage notional value precisely. Micro equity index futures and micro Bitcoin futures on regulated venues reduce the initial margin requirement and contract value, making it easier to structure a trading plan with smaller risk per trade. On crypto exchanges, you can often size perpetual futures to fractional amounts, but be careful with leverage and ensure that the notional aligns with your risk tolerance and the market volatility of the underlying asset.

Costs of Trading Futures

Trading futures carries explicit and implicit costs beyond the purchase price of the underlying asset. Consider:

• Commissions and exchange fees: Paid per contract or per notional value to the broker and exchange traded venue.
• Clearing fees: Charged by the clearinghouse that guarantees the contract.
• Financing and funding: Perpetual futures on crypto exchanges have funding payments between longs and shorts based on market conditions.
• Slippage and spreads: The difference between bid and ask and the execution quality during fast market conditions.
• Market data fees: For professional data feeds on traditional futures markets.

Build these costs into your performance expectations and evaluate whether your strategy can sustain them across different trading hours and market regimes.

Hedging, Speculation, and Spreads: Core Futures Strategies

Common approaches for futures traders include:

• Directional trading: Go long or short based on technicals, fundamentals, or quantitative signals, managing risk with stop orders and appropriate position sizing.
• Hedging: Use equity index futures to hedge a stock portfolio, sell futures contracts to protect a long crypto position on bitcoin exchanges, or lock in commodity pricing for a business.
• Calendar spreads: Trade the price difference between near-month and far-month contracts to express a view on contango or backwardation and interest rates or storage changes.
• Intermarket and pairs: Combine stock index futures, currency futures, or interest rate futures in relative value strategies.
• Futures options: Options on futures add another layer of flexibility for hedging tail risk or expressing volatility views with defined risk profiles.

Risk Management: Controls for Volatile Markets

Market volatility can change quickly. Build guardrails:

• Daily loss limits and circuit breakers within your trading platform.
• Risk per trade caps and maximum open positions relative to your trading capital.
• Hard stops that account for tick size and typical price movements of your contract.
• Maintain excess margin above the initial margin requirement so a normal fluctuation does not trigger a margin call.
• Diversify across contracts only if you can monitor them responsibly within your trading session, as correlations can rise abruptly.

Regulation and Safeguards

In the United States, the Commodity Futures Trading Commission and the National Futures Association supervise futures exchange venues, brokers, and clearinghouses to protect market integrity. When you trade on the Chicago Mercantile Exchange or similar regulated venues, rules on initial margin, maintenance margin, and daily settlement are enforced with strict oversight. For crypto exchanges and bitcoin exchanges, jurisdiction and regulatory frameworks vary, so due diligence is critical. Confirm custody practices, insurance arrangements, and the platform’s policies on risk limits and circuit breakers to minimize operational risk.

Futures vs Stocks, Options, and ETFs

Choosing between futures, stocks, options, and exchange traded funds depends on your strategy and constraints. Consider:

• Capital efficiency: Futures require only a performance bond upfront, making them capital efficient but risky because leverage magnifies losses.
• Liquidity and trading hours: Major equity index futures and crypto futures offer extended trading hours and deep liquidity versus many individual stocks.
• Diversification: Stock index futures and exchange traded funds ETFs provide index exposure in different ways; ETFs are ideal for investors, while futures are geared toward active hedging and trading.
• Tax and settlement rules: Rules vary by jurisdiction and contract, and you should consult a professional for advice tailored to your circumstances.

Common Mistakes When Trading Futures

• Overleveraging a small account and underestimating market volatility.
• Ignoring contract specifications such as tick value, trading session times, and expiration date.
• Failing to account for funding payments on perpetual futures or interest rates in fair value calculations.
• Neglecting to size positions by notional value rather than only by initial margin.
• Trading without a written trading plan and risk rules.

Key Terms and Concepts for Futures Traders

• Underlying asset: The instrument referenced by a futures contract.
• Contract value and notional value: The monetary value of the position based on current market price and contract size.
• Initial investment: The capital you allocate to trading, including initial margin and extra buffer.
• Initial margin and maintenance margin: Margin thresholds that govern opening and sustaining a futures position.
• Performance bond: Another term for futures margin collateral.
• Market participants: Hedgers, speculators, arbitrageurs, market makers, and institutional investors.
• Fixed price and predetermined price: The agreed-upon level in a futures contract for a future date.
• Physical delivery and cash settlement: Settlement methods at expiry.
• Exchange traded: Contracts listed and cleared on an organized futures exchange.

Putting It All Together: A Practical Checklist

• Clarify your reason for trading futures: hedge, speculate, arbitrage, or diversify.
• Select the right venue: a regulated futures exchange like the Chicago Mercantile Exchange through a broker, or reputable crypto exchanges for digital asset futures.
• Match the contract: equity index futures, stock futures, commodity futures, currency futures, or interest rate futures to your edge and time horizon.
• Know the contract specifications: tick size, tick value, expiration date, settlement type, and trading hours.
• Size positions by notional value and set conservative leverage.
• Maintain a margin buffer to avoid margin calls during sharp price movements.
• Use a tested trading plan with defined entries, exits, and risk controls.
• Review platform risk settings and order types to execute effectively during rapid market price changes.

Frequently Asked Questions

How does trading futures work?

Trading futures works by buying or selling a standardized contract that references an underlying asset at a predetermined price for a specified future date. You open a futures position by posting an initial margin in your margin account, which acts as a performance bond rather than paying the full contract value. The contract’s profit and loss is marked to the current market price each trading session, and gains or losses flow daily into or out of your account. If equity falls below the maintenance margin, you receive a margin call and must add funds. You can close the position at any time during trading hours before the expiration date by taking the opposite side, or you can hold to the expiry date for cash settlement or physical delivery depending on the contract specifications. On crypto exchanges and bitcoin exchanges, you may trade perpetual futures that have no expiry date, where periodic funding payments align the futures prices with the current price of the underlying asset. Because leverage magnifies price movements, trading futures requires careful risk management, understanding of notional value, and a clear trading plan tailored to market volatility.

Do you need $25,000 to trade futures?

No, you do not need 25,000 to trade futures. The 25,000 rule is the pattern day trader requirement that applies to frequent stock trading in a margin account, not to exchange traded futures. For futures, your broker or crypto platform sets initial margin requirement and a minimum account balance for each contract based on market risk and volatility. That said, responsible trading requires sufficient trading capital to maintain a margin buffer above maintenance margin and to withstand normal price movements without forced liquidation. While you can start trading futures with less than 25,000, consider using smaller contracts such as micro equity index futures or micro Bitcoin futures on regulated venues, or carefully sized perpetual futures on crypto exchanges, so that your position size and risk per trade remain manageable.

Can I trade futures with $100?

In most regulated futures markets, 100 is not enough to meet the initial margin for standard or even micro contracts. Micro contracts often require several hundred to several thousand dollars of initial margin depending on market volatility, and brokers may impose a higher minimum account balance. Some crypto exchanges allow very small accounts to open tiny perpetual futures positions using high leverage, but this dramatically increases the risks involved. With only 100, a modest adverse move can trigger a margin call or full liquidation. A safer approach is to build a larger capital base, choose contracts with lower notional value, and risk only a small percentage of your trading capital per trade. Always remember that investments involve risk, and capital preservation should guide your position sizing.

Is it better to trade futures or stocks?

Whether it is better to trade futures or stocks depends on your goals, experience, and risk tolerance. Futures offer capital efficiency, nearly around-the-clock trading hours for many contracts, and the ability to go long or short easily, which appeals to hedgers and active traders. However, leverage introduces significant market risk, and losses can exceed your initial investment if you are not careful with risk management. Stocks and exchange traded funds are often better for long-term investors who prefer to own an underlying asset without the obligations tied to a futures position. Stock and options traders who want to manage portfolio beta or hedge earnings events may use equity index futures tactically. Ultimately, match the instrument to your strategy, ensure you understand contract specifications, and use a platform and risk framework that fit your experience level and capital.