Quick take
- Spot means buying the coin itself; futures are contracts on its price.
- Futures use leverage, charge funding and can be liquidated.
- For most beginners, spot is simpler and limits losses to what you put in.
Spot: you own the coin
A spot purchase swaps money or stablecoins for the actual coin. You can hold it for years, withdraw it to your own wallet or sell it. The most you can lose is what you paid, if the price goes to zero.
Futures: you hold a contract
A futures position pays out based on the coin's price, without you owning the coin. Most crypto futures are perpetual: they have no expiry date. You can go long (profit if the price rises) or short (profit if it falls), usually with leverage.
Funding keeps the contract close to spot
Because perpetuals never expire, exchanges use a funding rate to keep their price near the spot price. When the contract trades above spot, longs pay shorts; when below, shorts pay longs. Payments are often made every eight hours.
Example: $5,000 long, funding +0.03% → you pay $1.50 at that interval
Liquidation
With leverage, a small price move can use up your margin. At 10x leverage, a move of about 10% against you (a little less once fees and maintenance margin are counted) will trigger liquidation: the exchange closes your position and your margin is gone. At 50x, around 2% is enough.
Side by side
| Spot | Perpetual futures | |
|---|---|---|
| You own the coin | Yes | No |
| Can profit from falling prices | No | Yes (short) |
| Leverage | None | Common |
| Ongoing cost | None while holding | Funding, which can be paid or received |
| Can lose more than a small move's worth | No | Yes, via liquidation |
Rules differ by country
Many regulators restrict crypto derivatives for retail customers. In the UK, crypto derivatives cannot be sold to retail consumers, and in the EU leverage on crypto CFDs is limited to 2:1. Platforms offering high leverage to you may not be authorised where you live.
Work out margin with the margin calculator and read trading fees explained before considering futures.
Common questions
Is futures trading gambling?
It doesn't have to be, but high leverage with no plan behaves much like gambling, and liquidations are common. Many experienced traders use little or no leverage.
Why is the funding rate sometimes negative?
When the futures price is below spot, usually because more traders are short, short positions pay long positions.