Crypto futures from scratch: a beginner's guide

A future is a contract that tracks the price of a coin. You don’t buy bitcoin: you open a position that gains or loses as its price moves.

• Long: you profit if the price rises and lose if it falls.
• Short: you profit if the price falls and lose if it rises.

Traditional futures expire on a set date. Perpetuals, the most traded ones in crypto, don’t expire: you can keep the position open as long as you like. In exchange, funding is paid every few hours, which is explained below.

Margin is the money you put in. Leverage multiplies that margin with the exchange’s money. With $100 of margin at 10x, your position is $1,000: if the price moves 1%, you gain or lose $10, 10% of your margin.

CryptoBruj stresses that the leverage number alone doesn’t tell you how much you’re risking. What counts is the size of the position compared with your account: $5 at 100x and $100 at 5x are the same $500 position. He explains it in this video:

How much to use and how to work out the real risk is in the guide to leverage and liquidation price.

Before opening a trade you choose the margin mode. In isolated margin, each position can only lose the margin you put into it. In cross margin, the whole balance of your futures account backs it. If you’re just starting out, go isolated.

The differences, with a worked example, are in the guide to cross or isolated margin.

If the price goes against you until it eats up the position’s margin, the exchange closes it: that’s liquidation. A BTC long at $60,000 with 10x is liquidated at around $54,270, a little less than 10% lower. At 50x, a drop of less than 2% is enough.

Your futures account never goes negative: if it reaches zero, your positions are closed and you owe the exchange nothing. But the money in that account is lost. That’s why the stop loss always goes before the liquidation price.

You can work out the liquidation price of any trade with the futures calculator.

Since perpetuals don’t expire, something has to keep their price close to the spot price. That’s funding, or the funding rate: a payment between traders, every 8 hours on most exchanges. If it’s positive, longs pay shorts; if it’s negative, the other way round.

On a trade that lasts a few hours you barely notice it. On one you leave open for weeks, you do: at 0.01% every 8 hours, almost 11% of the position size goes in a year. More in the guide to funding.

The fee is charged when you open and when you close, and on the full size of the position, not on your margin. With $100 at 20x you pay the fee on $2,000.

• Limit order: you set it at a price and wait for the market to reach it. It usually pays a lower fee.
• Market order: it fills at once, at whatever the price is. It usually pays more. In his livestream, CryptoBruj compares 0.02% for a limit order with 0.06% for a market order.

With high leverage, the fees for opening and closing can be a large part of the result. You can see how much you pay with the fee calculator.

Most exchanges have a futures demo account: the same screen, with play money. CryptoBruj recommends starting there and making your mistakes there. A first practice trade:

1. Go to the futures demo account and pick a pair, for example BTC/USDT.
2. Set the margin to isolated and the leverage to 10x.
3. Before entering, decide where you’ll close in profit (take profit) and where at a loss (stop loss).
4. Adjust the size so that, if the stop is hit, you lose at most 2 or 3% of the account.
5. Open the position with the take profit and the stop loss already set.
6. Watch how the result, the liquidation price and the fees charged on closing change.

Repeat until opening, closing and setting the stop come without thinking. Also try what you wouldn’t do with real money, like 125x, to see how fast liquidation comes. If your way of trading works on the demo account, move to the real one with a small amount. CryptoBruj is clear about it: it’s normal not to be profitable at first, and it took him almost a year.

• Don’t lose more than 2 or 3% of the account on one trade. If the stop the chart calls for takes more, cut the size or the leverage.
• Don’t go above 20x. He trades between 10x and 20x, and at 50x an isolated trade is liquidated by a small move.
• Three losses in a row and your day is over. If it’s not your day, leave it.
• Don’t change the leverage with positions open. Pick one, 10x or 20x, and stick with it.
• Never trade with borrowed money or with money you need to live on.

The basics are in the guide to basic trading rules. Where to put the stop and the take profit, in stop loss and take profit, and how to find the levels on the chart, in support and resistance.

• Check the market mood with the Fear & Greed Index: with extreme greed, chasing the price usually costs you.
• Check whether there’s important data that day in the economic calendar: inflation or Fed rates move bitcoin within minutes.
• And before depositing, look at where you trade: how to choose an exchange for futures.