What Is a Future Contract?

Futures trading is an investment product highly used by crypto investors. Contrarily to the Spot Trading market, where they buy and sell the assets they own, in Futures trading, people do not trade the underlying asset, but actually their price actions. Crypto futures contracts are divided into delivery and perpetual.

A Delivery Futures Contract is an agreement to trade (buy or sell) a token at a specific price and date. A perpetual contract does not operate with any underlying asset, but with its price action. Let’s go into more details about those specific products:

What Is a Delivery Futures Contract?

A delivery futures contract is essentially a derivative financial product that obligates parties to buy or sell an asset at a predetermined future date and price.

When you buy a delivery, you do not have to pay the total amount of an asset as you would if you had purchased the token in spot markets. The settlement will only take place at the contract’s expiration, and before that, a margin should be deposited as collateral so you can guarantee that you have enough assets to fulfill the obligation.

Crypto futures have strong similarities to stock futures, but the sector has evolved, and a now-widely used product is the Perpetual Futures.

How to Trade Delivery Futures on Gate.io?

Gate.io provides weekly, bi-weekly, quarterly, and bi-quarterly delivery futures. Go to the Futures Center page and select the Delivery futures Contract you want to invest in to go to the trading platform page.

Source: Gate.io

You will then have access to the mark price, time of expiry, open interest, and the trading volume. In the example above, let’s examine what the product code (BTCUSDT0701- Weekly) refers to:

BTC is the base currency of the contract

USDT is the quote currency of the contract

0701 is the expiring date

Weekly is the duration of this type of contract

What Is a Perpetual Futures Contract?

Perpetual contracts are innovative financial derivatives, similar to the futures in traditional finance but without having any expiration or settlement date.

Through this type of contract, traders can only focus on the tokens’ ups and downs, make use of higher leverage - and “hold” their positions for as long as they want.

Perpetuals concentrate the majority of the liquidity of BTC and ETH and allow more flexible operations for the market. The result is that the volume of crypto futures is much higher than that of the spot market. If you check Gate.io’s homepage, you will see that the futures daily trading volume is probably higher than the spot trading volume.

Also, perpetuals are not based on the underlying assets but on an Index Price. Each exchange performs its own calculations, and Gate.io’s Index Price is the average asset price in the major Spot Markets, as detailed in this article.

Given that the market is filled with robot traders and arbitrage systems, the perpetual price of assets is usually similar to the related assets on the Spot market.

How to Trade Perpetual Futures on Gate.io?

Go to the Futures Center page, select the Perpetual Contract you want to invest in, and go to the trading platform page.

Source: Gate.io

The interface is similar to Spot Trading. Users simply have to define which pair they want to trade and select the price, size, and leverage multiplier.

When to Trade Futures?

Depending on the investor’s strategy, futures contracts can be used for different purposes, such as:

• Leverage: Investors can increase their exposure to a specific asset through leveraged positions. Gate.io allows leverage of up to 100X.

• Short positions: Investors who expect prices to go down can open short positions that appreciate in value when prices go down.

• Hedge: For more expert traders, futures can also be used to hedge against market crashes or downward pressure on specific tokens. Hedges are usually executed along with a cautious risk management process to reduce the stress and volatility of a portfolio.

Commodity vs. Crypto Futures

Commodity futures contracts are financial derivatives that obligate the parties to buy or sell a physical commodity, such as agricultural products, energy products, or metals, at a predetermined price on a future date. These futures contracts are typically standardized and traded on a futures exchange.

Cryptocurrency futures contracts are similar to commodity futures contracts, but they are based on cryptocurrencies rather than physical commodities. A cryptocurrency futures contract obligates the parties to buy or sell a specific amount of a cryptocurrency at a predetermined price on a future date.

There are some key differences between commodity futures and cryptocurrency futures:

• Underlying asset: Commodity futures are based on physical commodities, while cryptocurrency futures are based on digital assets.

• Market size: The market for cryptocurrency futures is relatively small compared to the market for commodity futures, which includes a wide range of physical commodities.

• Regulatory environment: The regulatory environment for commodity futures is generally well-established, while the regulatory environment for cryptocurrency futures is still evolving and may vary from country to country.

Regarding the last point, it must be said that this rule does not apply to Bitcoin (at least in the United States), because this is considered a commodity by the U.S. Commodity Futures Trading Commission (CFTC).

Conclusion

Future trading is a massive market in the crypto sector, being responsible by far for most of the crypto trading volume globally. Although, this product is recommended for professional traders and requires broader financial knowledge and experience.

We strongly advise doing your own research and having a deeper understanding of how these products work and what determines their price fluctuations before starting to trade.

Gate.io currently offers delivery and perpetual trading products for users in a safe, stable, and reliable trading platform with one of the highest liquidities among all exchanges, making your trading experience the best possible. Check out the Futures Center to see the advantages of trading on Gate.