Bitcoin contracts have become a cornerstone of modern digital asset trading, offering traders powerful tools to speculate on price movements or hedge existing positions. Unlike traditional spot trading—where you must own the actual cryptocurrency to trade—bitcoin contracts allow you to profit from both rising and falling markets without holding the underlying asset.
This guide breaks down everything you need to know about bitcoin futures, including the two main types: delivery contracts and perpetual contracts. We’ll explore how they work, their key differences, and essential concepts for successful trading.
What Are Bitcoin Futures?
Bitcoin futures, also known as bitcoin contracts, are derivative financial instruments that enable traders to speculate on the future price of Bitcoin. These contracts do not require ownership of actual BTC—instead, traders enter into agreements based on price expectations.
The core advantage of bitcoin futures lies in their flexibility:
- Go long (buy): Profit if you believe the price will rise.
- Go short (sell): Profit even if the price drops.
In spot markets, profits come only from buying low and selling high. With futures, you can benefit from market volatility in both directions, making them ideal for active traders and risk managers alike.
These contracts are standardized and traded on regulated platforms, ensuring transparency and liquidity. They're widely used not just for speculation but also for hedging exposure in volatile crypto markets.
Types of Bitcoin Contracts
There are two primary types of bitcoin contracts available today:
- Delivery Contracts
- Perpetual Contracts
Each serves different trading strategies and time horizons.
1. What Is a Delivery Contract?
A delivery contract (or expiring futures contract) is an agreement between two parties to buy or sell bitcoin at a predetermined price on a specific future date—the delivery date.
Key features:
- Set expiration and settlement time.
- Final settlement occurs in either cash or actual BTC, depending on the platform.
- Pricing is based on the market’s last traded price, not an index.
Types of Delivery Contracts
Delivery contracts are categorized by their expiry schedule:
- Weekly (This Week): Expires on the nearest upcoming Friday.
- Next Week: Expires on the second Friday from the current date.
- Quarterly (This Quarter): Expires on the last Friday of the nearest quarter month (March, June, September, December), provided it doesn’t conflict with weekly expiries.
- Next Quarter: Expires on the last Friday of the second-closest quarter month.
Special Rule During Quarter Transitions:
On the third-to-last Friday of each quarter month, no new "next week" contract is created. Instead, a new "next quarter" contract launches. This prevents overlapping expiry dates and maintains market clarity.
After expiration, open positions are automatically settled, and traders must roll over their positions manually if they wish to maintain exposure.
👉 Learn how delivery contracts can help you manage risk across market cycles.
2. What Is a Perpetual Contract?
A perpetual contract is a revolutionary evolution of traditional futures—it has no expiration date, allowing traders to hold positions indefinitely (as long as margin requirements are met).
Despite lacking a delivery date, perpetual contracts closely track the spot price of Bitcoin through a mechanism called funding rates.
This makes them ideal for short-term traders, scalpers, and those seeking continuous market exposure without worrying about contract rollovers.
Essential Concepts for Trading Perpetual Contracts
To trade perpetual contracts effectively, you must understand several core mechanisms that govern their behavior.
Key Concept 1: Funding Rate Mechanism
The funding rate ensures that the perpetual contract price stays aligned with the underlying spot price.
Every 8 hours, traders exchange funding payments:
- If the funding rate is positive, long position holders pay short position holders.
- If the funding rate is negative, short position holders pay long position holders.
Formula:
Funding Fee = Net Position Value × Funding Rate
This periodic transfer discourages prolonged deviations between contract and spot prices, maintaining market efficiency.
Traders can even use funding rates strategically—going long during negative rates to collect payments, for example.
Key Concept 2: Linear vs Inverse (Quanto) Contracts
There are two main pricing models:
Linear (USDT-margined) Contracts:
- Priced in stablecoins like USDT.
- Profits and losses calculated in USDT.
- Collateral posted in USDT.
- Ideal for beginners due to stable valuation.
Inverse (Coin-margined) Contracts:
- Also priced in USDT but collateralized in BTC.
- P&L fluctuates based on BTC’s value.
- Best suited for experienced traders holding BTC who want to avoid converting to stablecoins.
For instance, with a BTC/USDT inverse contract:
- You deposit BTC as margin.
- Gains or losses are settled in BTC.
- High volatility in BTC price affects your effective returns beyond just the trade direction.
Key Concept 3: Tiered Liquidation (Partial Liquidation)
To improve risk management, many platforms use tiered margin systems with partial liquidation.
Here’s how it works:
- Your maximum allowable leverage depends on your position size (larger positions = lower max leverage).
- When your margin falls below the maintenance level, the system triggers liquidation.
- Instead of closing your entire position at once (full liquidation), it reduces your position gradually (partial liquidation) until risk levels return to acceptable tiers.
- Only if margin drops to zero after tiered reductions will full liquidation occur.
This feature helps preserve capital during sudden volatility and reduces the chance of total loss from brief price spikes.
Frequently Asked Questions (FAQ)
Q: Can I make money with bitcoin contracts even if the price is falling?
A: Yes. Bitcoin contracts allow both long and short positions. By going short, you profit when prices drop—making them valuable in bear markets.
Q: What happens when a delivery contract expires?
A: At expiry, all open positions are settled automatically based on the final settlement price. Traders must close or roll over positions before this point if they wish to continue trading.
Q: Do I need to own Bitcoin to trade perpetual contracts?
A: No. You only need sufficient margin (in USDT or BTC, depending on contract type). Ownership of actual Bitcoin isn’t required.
Q: How often is funding paid in perpetual contracts?
A: Typically every 8 hours—at 04:00 UTC, 12:00 UTC, and 20:00 UTC. Check your exchange’s schedule.
Q: Is leveraged trading risky?
A: Yes. While leverage amplifies gains, it also increases potential losses. Always use risk controls like stop-loss orders and position sizing.
Q: Why choose a perpetual over a delivery contract?
A: Perpetuals offer convenience—no expiry to manage—and are better for ongoing strategies. Delivery contracts suit those targeting specific events or dates.
Final Thoughts
Bitcoin contracts—whether delivery or perpetual—offer sophisticated ways to engage with cryptocurrency markets beyond simple buy-and-hold strategies. Understanding their mechanics empowers traders to navigate volatility, hedge risks, and capitalize on trends in both directions.
Whether you're drawn to the structured nature of delivery contracts or the flexibility of perpetuals, mastering these instruments requires knowledge, discipline, and reliable tools.