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Quick answer
Contract trading crypto covers perpetual swaps (no expiry, funding-rate-anchored), dated futures (CME-style with quarterly expiry), and margin contracts (leveraged spot). Major venues are Binance, Bybit, OKX, dYdX, and CME. Funding rates equilibrate perpetual prices to spot every 8 hours; liquidation engines auto-close positions when margin falls below maintenance threshold.
Contract trading crypto is leveraged exposure to a coin’s price without owning the underlying token. You post margin, the broker tracks the price, and your profit or loss is the price move multiplied by contract size, less any funding paid along the way. Two contract types do nearly all the volume: perpetuals (no expiry, funded every 8 hours) and dated futures (fixed expiry, no funding). Both are settled in cash or stablecoin, not in delivered crypto. The mechanics are identical to FX or index CFDs; the volatility is not.
The two contract types, side by side
| Feature | Perpetual | Dated future |
|---|---|---|
| Expiry | None | Fixed (monthly, quarterly) |
| Funding rate | Every 8 hours | None |
| Basis | Anchored to spot via funding | Trades at a basis to spot, converges at expiry |
| Roll | Not required | Required if holding past expiry |
| Carry cost | Variable, paid every 8h | Priced in at trade entry |
How the funding rate keeps a perp tracking spot
A perpetual contract has no expiry, so there is no natural mechanism to drag its price back to spot. The funding rate solves this. Every 8 hours:
- If the perp trades above spot, longs pay shorts.
- If the perp trades below spot, shorts pay longs.
- The rate scales with the gap. A 0.05% per 8h funding rate is roughly 54% annualised.
In a strong bull, perp longs bleed funding to shorts continuously. A trader who holds a winning long for a month can net flat after funding. Track it daily.
How a dated future prices time
A 3-month BTC future trading 1.5% above spot implies an annualised carry of roughly 6%. That is the cost of buying time without holding the underlying. As expiry approaches, basis converges to zero and the contract settles at the reference index price. There is no funding payment, but the entire carry is locked in at trade entry. If you want a known cost, dated futures price it cleanly. If you want flexibility on duration, perps are simpler.
Margin: three numbers that run the trade
- Initial margin: deposit required to open. At 1:2 retail crypto leverage (ESMA cap), initial margin is 50% of notional.
- Maintenance margin: minimum equity required to keep the position open. Below this, you receive a margin call.
- Liquidation price: the price at which the broker auto-closes the position to prevent further loss.
Worked example. You go long 1 BTC at $60,000 with 1:2 leverage. Initial margin: $30,000. Maintenance margin at 25%: position closes when equity drops to $7,500. That happens around BTC $37,500. Negative balance protection on retail accounts caps your loss at the $30,000 posted; you cannot owe more.
Cross margin vs isolated margin
- Isolated: each position has its own margin pool. A loss on one position cannot drain another. Use this until your portfolio Greeks are intuitive.
- Cross: all positions share one margin pool. A profitable position can subsidise a losing one. More capital-efficient but riskier; one bad position can chain-liquidate the rest.
The four classic failure modes
- Leverage creep. Starting at 1:2, then 1:5, then 1:10. The risk-of-ruin curve is non-linear; a 50% drawdown at 1:10 wipes the account.
- Funding ignorance. Holding a perp for weeks without modelling carry. A profitable thesis can be erased by 5% per month of negative funding.
- Cross-margin contamination. A losing position eating margin from winners. Isolate until disciplined.
- News-gap risk. Crypto trades 24/7, but liquidity is uneven. Weekend ETF rumours, exchange exploits, and macro headlines move BTC 10% in 30 seconds. Stops fail to fill at advertised price.
What contracts are good for
- Capital efficiency. Same exposure, less cash tied up.
- Short exposure. Spot is long-only; contracts let you express bearish views.
- Hedging. A long-term spot holder can short a perp to neutralise short-term downside without selling the underlying. The cash-and-carry trade earns or pays the funding rate while staying delta-neutral.
Regulatory framing
Under ESMA product-intervention measures effective since 2018 and renewed permanently, retail clients in the EEA face leverage caps: 1:2 on cryptoassets, 1:5 on individual equities, 1:10 on commodities other than gold, 1:20 on non-major indices and FX, 1:30 on major FX pairs. Negative balance protection is mandatory on retail accounts. Professional clients on request, classified under MiFID II Annex II criteria, can access higher leverage subject to a suitability assessment.
Crypto contracts at Volity
Volity offers crypto CFD exposure on 20+ coins. Retail leverage is capped at 1:2 under ESMA. Negative balance protection applies on retail accounts. Execution is by UBK Markets Ltd (CySEC 186/12). For unleveraged exposure, see our crypto spot trading definition.
