## What are futures: A complete guide to getting started

Futures trading is a derivative financial instrument that differs significantly from spot trading. This operational mode allows investors to achieve substantial profits through short positions (short) or by using leverage, potentially amplifying returns with a reduced initial capital.

## What are futures and how do they work

Futures enable traders to speculate on future price movements of an asset by borrowing capital to increase exposure. For example, with 10,000 USDT and 10x leverage, you can control a position equivalent to 100,000 USDT.

When a trader believes Bitcoin's price is about to rise from $50,000, they can open a long (bullish) position. If the price increases to $60,000 the next day, the position generates a profit proportional to the leverage used. Conversely, traders can open short positions to profit from downward market movements.

## The main types of futures in the crypto market

In the cryptocurrency sector, specialized platforms mainly offer two categories of futures:

**USDT-M/USDC-M Futures (also called forward futures):**
These contracts are settled in stablecoins like USDT and USDC. Examples include pairs like BTCUSDT and ETHUSDC. USDT-M/USDC-M perpetual futures can be held indefinitely without expiration, making them ideal for beginners.

**Coin-M Futures (also known as inverse futures):**
Settled in native cryptocurrencies like Bitcoin, these contracts include both perpetual Coin-M futures and futures with expiration and delivery dates. The main difference lies in the settlement currency and contract structure.

Understanding these distinctions is essential: each type of futures requires a clear identification of the underlying asset, settlement currency, and expiration date (if applicable).

## Advantages of futures trading

**Amplified gains with less capital:**
Leverage is the defining element of futures trading. A leverage of 125x allows you to multiply gains up to 125 times compared to the invested capital. For example, a 10% increase in the position with 10x leverage would result in a 100% profit on the initial capital.

**Quick profit realization:**
Compared to spot trading, where seven 10% increases would be needed to double capital, leverage trading can potentially double the investment with a single move of the same magnitude.

**Possibility of short positions:**
The cryptocurrency market alternates between bullish and bearish phases. Futures give traders the ability to generate profits even during market corrections by opening short positions, a feature not available in traditional spot trading.

**Hedging (hedging):**
Experienced investors and miners can protect their spot assets by opening short futures positions, offsetting value losses during difficult market phases.

## The significant risks of leverage

**The danger of liquidation:**
While leverage amplifies gains, it equally amplifies losses. Liquidation occurs when available margin falls below the minimum maintenance requirements. A trader opening a Bitcoin long position with 50x leverage will face total liquidation if the price drops by 2% (50 × 2% = 100%). Even a subsequent rebound would not recover the lost capital.

Similarly, a short position with 20x leverage would be liquidated with a 5% price increase. This risk is the biggest challenge for new traders who do not fully understand the correlation between leverage and potential loss.

## Essential terminology for futures trading

**Margin and margin ratios:**
Margin is the capital locked to maintain an open position. The margin ratio measures the risk of the current position; when it reaches 100%, liquidation occurs. The maintenance margin is the minimum required to keep the position.

**Isolated margin vs. cross margin:**
In isolated margin, a fixed amount is assigned to each position, limiting losses to that specific margin. In cross margin, all available account balances act as a cushion, reducing the risk of immediate liquidation.

**Mark price and liquidation price:**
The mark price is the reference price used to calculate profits and losses. The difference between the mark price and the estimated liquidation price provides traders with an indication of the safety margin before potential liquidation.

**Orders and execution:**
Limit orders allow traders to specify a desired price, while market orders are executed immediately at the available price. Trailing stop loss/take profit is an automatic instruction that activates when the market reaches certain price levels.

**Unrealized P&L:**
Represents the estimated profit and loss of an open position based on the current market price, excluding transaction or funding fees.

Futures trading remains a powerful tool for those who understand the underlying mechanisms and manage risk properly. A solid understanding of these concepts is the first step toward informed operations and effective management of crypto market volatility.