What Are Futures? Perpetual Futures Simply Explained
Jan DreherJune 20267 min readA future is an agreement about a price, not the purchase of a thing. Whoever trades a Bitcoin future long does not own any Bitcoin. They hold a contract whose value rises when Bitcoin rises and falls when Bitcoin falls. That sounds like a detail, but it is the core of everything that comes after: leverage, margin, liquidation and funding only exist because you trade a contract and not a coin.
The classic future: a forward contract
Futures come from commodity trading. A wheat farmer sells his harvest in March at a fixed price for delivery in September, and both sides have planning security. That is why the classic future has an expiry date: on the settlement day it is settled. On traditional exchanges this still works this way today, including for Bitcoin futures on the CME.
Perpetual futures: the crypto standard without expiry
The crypto variant is called a perpetual future, perp for short, and it has no expiry date. You can hold the position for a minute or a year. To keep the contract price glued to the real market price anyway, there is the funding rate: every 8 hours, the holders of the crowded side pay a small fee to the other side. If too many traders are long, longs pay shorts, and vice versa. That pushes the perp price back toward the spot price.
For you this means: a held position costs or earns funding every 8 hours, usually around 0.01 percent. Sounds tiny, but on large positions over weeks it adds up noticeably.
Long and short: both directions are tradable
Futures make falling prices tradable. Long means you profit from the rise. Short means you sell the contract first and buy it back cheaper later, so you profit from the decline. In the spot market you can only buy and hold. In the futures market, a falling market is just as much a market.
Margin, leverage, liquidation: the exchange's safety net
Because you only hold a contract, you post collateral, the margin. With leverage you control how big your position is relative to the margin: 100 USDT margin times 10x leverage gives a 1,000 USDT position size. If the market runs against you, the loss eats into the margin. Before it is used up, the exchange closes the position by force, the liquidation. It protects the exchange, not you.
Spot or futures: what is right for whom?
- Spot: you own the coin, no leverage, no liquidation, no funding. The right choice for buy and hold.
- Futures: leverage, the ability to short, funding, liquidation risk. A tool for active trading with rules.
- For getting started: first experience the mechanics in the simulator with play money, then decide whether futures suit you at all.
Futures are neither evil nor an ATM. They are a contract with built-in leverage, and that amplifies both: your skill and your mistakes.
Frequently asked questions
What is the difference between spot and futures?
In the spot market you buy the coin and own it, in the futures market you trade a contract on its price. Only futures offer leverage and the ability to go short, but with them come margin, funding and liquidation risk. Ownership versus flexibility, that is the trade-off.
What is the funding rate?
The funding rate is a payment between long and short holders that falls due every 8 hours and keeps the perpetual price at the spot price. If it is positive, longs pay shorts; if it is negative, the other way around. It is not an exchange fee, the money flows from traders to traders.
How long can I hold a perpetual future?
Indefinitely, as long as your margin covers the losses and the funding. There is no expiry date. In practice, two things limit the holding period: a liquidation, if the market runs too far against you, and the funding costs, which add up over a long hold.
Are futures suitable for beginners?
Not as an entry with real money. Leverage and liquidation punish exactly the mistakes beginners make, and instantly. The sensible path: first experience the mechanics in a simulator with real live prices, learn the basics and risk management, and only then start with a small stake and low leverage.
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Start for freeJan Dreher is the founder of learn-daytrading.com and builds tools for crypto traders, including the simulator with real live prices from Binance and Bybit and the platform's position size calculator. Here he writes about the craft behind trading: risk, position size and the math most traders fail at. Every number in his articles is verifiable, every recommendation is justified.