Futures contract

A futures contract fixes today the price at which an asset will change hands on a set expiry date. In crypto most contracts are cash-settled: at expiry, the difference between the agreed price and a reference price is paid in money or stablecoins instead of delivering coins. Traders post margin rather than the full value of the contract.

Dated bitcoin futures have traded on CME since December 2017, and CME also lists ether futures and smaller micro contracts. Crypto exchanges offer monthly and quarterly futures alongside perpetual contracts, which never expire. The gap between the futures price and spot, called the basis, is watched as a measure of demand, and funds run cash-and-carry trades that buy spot and sell futures to capture it.

Futures allow hedging and leveraged exposure, but leverage brings liquidation risk, and contracts must be rolled before expiry to keep a position open. Prices can also diverge noticeably from spot in stressed markets.