Coin-margined futures are a cornerstone product in the cryptocurrency derivatives market. They are contracts where the underlying cryptocurrency itself—like Bitcoin (BTC) or Ethereum (ETH)—is used for pricing, settlement, and as the margin collateral. This guide breaks down everything you need to understand how they function, their strategic uses, and the mechanics of trading them.
Core Concepts of Coin-Margined Futures
A coin-margined futures contract is a binding agreement to buy or sell a specific amount of a cryptocurrency at a predetermined price on a future date. Unlike their USDT-settled counterparts, every aspect of these contracts is denominated in the underlying crypto asset.
Key characteristics include:
- Pricing Unit: Contracts are quoted in USD, but all profits, losses, and margin are handled in crypto.
- Common Pairs: Examples are BTCUSD (settled in BTC) and ETHUSD (settled in ETH).
- Settlement: All profits and losses are calculated and paid out in the contract's settlement currency. For instance, if you profit on a long BTCUSD trade, you receive more BTC.
- Contract Varieties: They come in two main forms: perpetual contracts and delivery (or quarterly) futures.
Perpetual vs. Delivery Futures
| Feature | Perpetual Futures | Delivery Futures |
|---|---|---|
| Expiry Date | No expiry date. | Fixed settlement date (e.g., BTCUSD-20240628). |
| Settlement | Uses a funding rate mechanism to tether the contract price to the spot price. | Settles at the official spot price upon the contract's expiry. |
| Ideal Use Case | Long-term holding, swing trading, and arbitrage strategies. | Hedging specific future price risk, institutional cash-and-carry arbitrage. |
Advantages and Disadvantages
Like any financial instrument, coin-margined futures come with their own set of benefits and risks.
Key Advantages
- Potential for Compound Gains: If you are bullish on an asset like Bitcoin, profiting in BTC means you benefit from both the successful trade and any further appreciation in BTC's value.
- Effective Hedging Tool: They are ideal for hedging an existing spot cryptocurrency portfolio. A short position in a coin-margined future can help offset potential losses from a downturn in the market.
- Funding Rate Efficiency: Historically, the funding rates for popular coin-margined pairs can be lower than those for USDT-margined pairs, potentially reducing the cost of holding positions.
Important Disadvantages
- Calculation Complexity: Your profit and loss (P&L) is in crypto, so you must mentally convert it back to your local fiat currency to understand its true value, adding a layer of complexity.
- Accelerated Liquidation Risk: Since your margin is held in a volatile asset, a sharp decline in that asset's price can cause your margin value to plummet, potentially triggering a liquidation faster than in a stablecoin-margined contract.
Key Trading Parameters and Order Types
Understanding the mechanics of placing and managing a trade is crucial for success.
Essential Trading Parameters
Before you open a position, you must configure several key settings:
- Leverage: A multiplier that allows you to open a position larger than your initial margin (e.g., 10x, 50x). Higher leverage increases both potential profit and risk.
Margin Mode:
- Cross Margin: All positions in your account share a single pool of margin balance. This mode reduces the chance of liquidation on one position but puts the entire balance at risk.
- Isolated Margin: Margin is allocated to a single position. This limits your maximum loss to the funds allocated to that specific trade.
Fees:
- Taker Fee: A fee paid when you execute an order that immediately fills against an existing order in the order book (typically 0.028%-0.042%).
- Maker Fee: A fee paid when you place an order that rests in the order book, providing liquidity (typically 0.0072%-0.014%). Maker fees are often rebated.
- Funding Rate: A periodic fee exchanged between long and short traders in perpetual contracts to ensure the futures price converges with the spot price. This occurs every 8 hours.
- Index Price: A calculated price derived from the spot prices on several major exchanges. It is used to determine the fair value of the contract and calculate unrealized P&L.
Available Order Types
Exchanges offer a variety of order types to execute your strategy:
- Limit Order: An order to buy or sell at a specific price or better. This gives you price certainty but not execution certainty.
- Market Order: An order to buy or sell immediately at the best available current market price. This gives you execution certainty but not price certainty.
Order Execution Policies
To control how your order is handled, you can apply these time-in-force rules:
- GTC (Good 'Til Canceled): The order remains active until it is either filled or manually canceled by you.
- IOC (Immediate or Cancel): The order must be filled immediately, in whole or in part. Any portion that cannot be filled instantly is canceled.
- FOK (Fill or Kill): The order must be filled in its entirety immediately or not at all.
Understanding Pricing and Funding Mechanisms
The pricing of futures contracts isn't just about the last traded price. Two critical concepts ensure fair and orderly markets.
Mark Price: Your True Benchmark
The mark price is arguably more important than the last traded price. It is a theoretical value calculated to prevent market manipulation and unnecessary liquidations caused by illiquid order books. Exchanges use the mark price to calculate your unrealized P&L and, most importantly, to trigger liquidation events.
It is calculated as:
Mark Price = Index Price + N-minute Moving Average
The moving average is computed from the difference between the exchange's mid-price and the index price over a recent time window.
Funding Rate: The Cost of Perpetuals
Perpetual contracts have no expiry, so a funding mechanism is used to anchor their price to the underlying spot price. The funding rate is a periodic payment between traders.
- Calculation:
Funding Fee = Position Value × Funding Rate - The funding rate itself is derived from the interest rate and a premium/discount index based on the difference between the perpetual contract price and the spot price.
- If the rate is positive, long positions pay short positions. If negative, shorts pay longs.
👉 View real-time funding rates and premium data to stay ahead of market trends and costs associated with holding positions.
Risk Management and Liquidation
Robust risk management is non-negotiable in leveraged trading. Understanding the liquidation process can save your capital.
The core mechanism is the Maintenance Margin Ratio (MMR). This is the minimum percentage of your initial margin that must be maintained to keep a position open. It is not a fixed number; it can increase with higher leverage tiers or market volatility.
- Margin Call: If your account's equity falls below the maintenance margin requirement, you will receive a warning, urging you to add more funds.
- Liquidation: If your margin balance drops to or below the level needed to cover the maintenance margin and closing fees, the exchange's system will automatically close your position at the best available market price to prevent further losses.
- Backstops: Major platforms employ an insurance fund and an Auto-Deleveraging (ADL) system to handle cases where a liquidated position cannot be closed at or above the bankruptcy price, protecting the broader ecosystem of traders.
Frequently Asked Questions
What is the main difference between coin-margined and USDT-margined contracts?
Coin-margined contracts are priced, collateralized, and settled in cryptocurrency (e.g., BTC). Your profit and loss fluctuate with the value of that crypto. USDT-margined contracts use the stablecoin USDT for all aspects, making P&L calculations more straightforward and stable.
How can I best avoid being liquidated?
Maintain a healthy margin balance well above the requirement, use stop-loss orders to automatically limit losses, employ sensible leverage instead of maxing it out, and monitor your account's risk ratio regularly, especially during periods of high volatility.
How does the funding rate impact my trading?
In perpetual contracts, the funding rate is applied every 8 hours. Depending on whether the rate is positive or negative, you will either pay or receive a fee. This fee is directly deducted from or added to your available balance, so it directly affects your overall capital.
What happens when a delivery futures contract expires?
Upon expiration, all open positions are automatically settled at the official final settlement price, which is based on the underlying index price. The resulting profit or loss is then credited or debited to your account in the contract's settlement currency (e.g., BTC).
Is the mark price the same as the price I traded at?
No. Your entry price is the price at which your order was filled. The mark price is a separately calculated fair value price. A slight difference between the two is normal and will cause an immediate unrealized P&L upon opening a position, but this does not represent a real gain or loss until the position is closed.
Can I close my delivery futures position before expiry?
Absolutely. Most traders close their delivery futures positions before the expiry date. You can close at any time by taking an opposite position in the same contract, realizing your P&L at the current market price. Physical delivery of the asset is rare for most retail traders.