What Are Bitcoin Futures? How They Work and More

Futures trading in crypto can either make you rich or wipe out your account faster than you can blink, and the platform you choose often determines which outcome you get.

The problem is that most exchanges market themselves as “futures-friendly” but fall apart when you need them most – during high volatility periods when spreads widen, orders get rejected, or platforms crash entirely.

Which is why we stress-tested all major futures platforms during both calm and volatile periods, and found that MEXC, Binance, and OKX consistently delivered the best performance.

Let’s take a closer look at them.

Key Takeaways

Bitcoin futures are financial contracts that compel the buyer to purchase (or the seller to sell) Bitcoin at a predetermined price on a specific future date, without needing to own the actual asset.
They allow traders to speculate on Bitcoin’s price, going long (buy) if they expect it to rise or short (sell) if they expect it to fall.
Bitcoin futures are available on regulated exchanges and crypto platforms, often with leverage to amplify potential gains or losses.

Understanding Bitcoin Futures

To understand Bitcoin futures, we need to detail exactly what a futures contract is. Futures fall under a category of investments called derivatives. A derivative is a financial instrument that has its value derived (hence the name) from an underlying asset, in this case, cryptocurrency. A futures contract is an agreement between two parties to exchange the equivalent value of an asset in fiat currency on a future date. Futures trading is common across many different asset classes such as stocks, oil, gold, and other commodities.

In simple terms, a futures contract is a bet on the price of an asset going up or down by a future date. Your resulting profits or losses are based on whether your bet was right or wrong.

How Bitcoin Futures Work

Let’s use the price of Bitcoin as an example of a futures contract investment. If an investor bets on the price of one Bitcoin increasing by a specified future date, this is known as “going long.” Conversely, if they think it will drop by the agreed date, it’s called “going short.”

When an investor goes long on a futures contract and the price rises as predicted, they can simply sell the contract later at a higher price. Shorting a futures contract involves selling a contract with the hope of buying it back later at a lower price to lock in a profit.

how crypto futures work — Futures contracts diagram | Source: June on Medium

Futures contracts can be perpetual or have a fixed expiration date. In a traditional expiration-date-based contract, parties to the contract settle based on the price of the asset on the expiration date. Perpetual futures contracts have no expiration or settlement date, so they are designed to be continuous in nature. As a result, a person can hold onto the contract indefinitely.

Perpetual contracts use a fee paid by one side of the contract to the other side to maintain a price balance between the futures contract and the underlying spot market. This involves regular payments between long and short positions to make sure that the price of the contract stays aligned with the spot price (the price of an asset at a specific point in time).

The History of Bitcoin Futures

The very first Bitcoin futures were sold on the Chicago Board Options Exchange (CBOE) in December 2017. They were discontinued in 2019 due to low trading volume and a decline in interest in the product but were restarted again in 2024.

Crypto futures for both Bitcoin and Ethereum were announced in October, 2017 by the Chicago Mercantile Exchange (CME). Investors were able to buy futures contracts starting in December of the same year. While the CME Group offers reference rates for several other cryptocurrencies, it currently offers futures contracts only for Bitcoin and Ethereum.

Pros and Cons of Trading Bitcoin Futures

Getting involved with Bitcoin futures can be a great alternative to owning cryptocurrency outright. However, it’s important to balance the excitement of a new opportunity with a thorough understanding of the risks involved.

Pros

Profit in both bull and bear markets: Futures contracts allow traders to profit whether prices rise or fall. It all depends on accurately predicting market movements. Unlike traditional buy-and-hold investing, money can be made in both up and down markets.
Hedging: Futures contracts can act as a type of insurance policy (or hedge) against price movements that would otherwise be a liability. For example, if you hold an amount of Bitcoin as an asset and anticipate a short-term price drop, you could go short with a futures contract to try to offset losses.
Leverage: Futures trading allows for leverage, meaning that traders can control a large contract value with a comparatively small upfront deposit (called margin). So if the contract value is $100,000 and the margin requirement is $10,000, then the leverage is 10:1. As a result, if you predict the price of Bitcoin in a futures contract will rise, and you’re correct, your profit is amplified by a factor of 10.

Cons

Leverage: Leverage can certainly amplify profits dramatically, but it can also amplify losses just as easily. If your prediction about a price movement is wrong, your losses will be amplified by the same factor, making high-leverage trading extraordinarily risky.
Liquidation: If your loss passes a threshold set by the contract, your position can be closed (or liquidated), your margin will likely be wiped out, and, depending on the contract’s terms, you could also face additional fees.
Tax implications: Crypto futures profits are treated as Section 1256 contracts by the IRS, meaning that they are subject to the 60/40 rule. This rule states that 60 percent of your profits are taxed as long-term capital gains, and the remaining 40 percent are taxed as short-term gains. State rules vary by jurisdiction.
Regulatory considerations: On the regulatory side, federal agencies regulate crypto futures similar to regulating other commodities. The primary agency involved in crypto futures regulation is the Commodity Futures Trading Commission (CFTC). It’s important to consult with tax and legal professionals to ensure compliance with applicable laws.

Popular Bitcoin Future Exchanges

Several crypto exchanges offer Bitcoin futures trading. When choosing a crypto futures exchange, you should look for an exchange that has good security, a well-designed user interface, high liquidity, reasonable fees, and leverage levels appropriate to your risk tolerance. We have previously explored a wider range of the best crypto futures trading platforms.

Below are 4 of the most popular Bitcoin futures exchanges.

1. Coin Futures

Coin Futures is a one-of-a-kind simulated crypto futures trading platform with the goal of cutting out all of the tedious and frustrating aspects of crypto trading. At its heart, it is powered by real-time simulated crypto price action. Naturally, it has the important tools you need, like stop-loss orders and take-profit orders, but it gets rid of technical analysis and complex contracts.

Coin Futures is popular with privacy-minded traders as it requires no KYC verification and you don’t even need a crypto wallet to use the platform. Unfortunately, it doesn’t yet have a mobile app, but that may change before long.

Visit Coin Futures

2. Binance

Trading volume: $43,000,000,000+
Fees: Maker – .02%, Taker – .04%

Binance is the world’s largest cryptocurrency exchange. Binance Futures, the derivatives arm of Binance, dominates the futures trading market with a daily trading volume more than double that of its closest rival. This is largely because of its strong reputation and massive selection of more than 340 derivative trading pairs (pairs of assets that can be exchanged for each other) with a wide range of cryptocurrencies.

Binance offers high-leverage options for traders comfortable with higher-risk trading, multiple order and contract types, and a competitive fee structure.

Visit Binance

2. Bybit

Trading volume: $16,000,000,000+
Fees: Maker – .02%, Take – .055%

Bybit is comparable to Binance in terms of currencies listed and trading products, but where Bybit differs is that futures trading is the central feature of the platform. While it has since launched spot trading, it has focused on futures from the very beginning.

Bybit offers futures trading for both Bitcoin and Ethereum, as well as numerous altcoins. For the high-risk trader, Bybit offers up to 100x leverage on select futures contracts.

Visit Bybit

3. OKX

Trading volume: $19,000,000,000+
Fees: Maker – .14%, Taker – .23%

OKX is another popular crypto exchange offering similar features to its competitors such as trading in major cryptocurrencies such as Bitcoin and Ethereum as well as altcoins, futures contracts, and high leverage limits.

Where OKX differentiates itself is in its fee structure. Traders can purchase OKB, OKX’s proprietary token, to trade with significantly reduced fees. Fee reductions can also be obtained through high trading volume.

Visit OKX

4. MEXC

Trading volume: $15,000,000,000+
Fees: Maker – 0%, Taker – .02%

MEXC is a trading platform that offers traders both perpetual and traditional futures contracts. This exchange differentiates itself from its competitors in several unique ways.

The first is its advanced trading engine that can handle high trading volumes with minimal latency. Another thing that sets MEXC apart is its security measures. It has a very rigorous KYC (Know Your Customer) process that ensures excellent compliance and security for its customers. Finally, it offers some of the lowest fees on the market, so it’s a strong choice for especially cost-conscious traders.

Visit MEXC

What Are Bitcoin Futures Options?

Another way to trade Bitcoin futures is through options. An option gives the holder the right to buy or sell a Bitcoin futures contract at a specified price by a certain date. Where an option differs from a futures contract is that the holder has the right, but not the obligation, to exercise the contract. When the expiration date is reached, they have the option (hence the name) to buy or sell the contract, but they are not required to. Options are essentially derivatives of derivatives.

There are two types of options: puts and calls. A call option gives the buyer the right to buy the futures contract at a specified strike price. If the price of the underlying futures contract is higher than the strike price at the expiration date, the buyer can exercise the option to purchase the futures contract at the strike price. Note that while stock options typically cover 100 shares per contract, each futures option generally only corresponds to one contract.

A put option gives the option buyer the right to sell the underlying contract at the strike price. If the price of the futures contract is below the strike price at expiration, then the buyer can exercise the option to sell the contract at the strike price.

By paying a premium for the option, the buyer gains protection from price fluctuations against unfavorable price movements. If the option is not exercised by expiration, the seller keeps the premium.

Are Bitcoin Futures Right for You?

Bitcoin futures aren’t suitable for everyone, and most traders who lose money do so because they don’t understand how margin calls, funding fees, and liquidation levels actually work in practice.

These aren’t like buying and holding Bitcoin. You’re dealing with leverage, expiration dates, and costs that can eat into your profits even when you’re right about price direction.

The appeal is obvious, you can control large Bitcoin positions with relatively small amounts of capital, and you can profit whether Bitcoin goes up or down. But futures trading requires active management, constant attention to market conditions, and a solid understanding of how these instruments actually work.

Before you dive into Bitcoin futures, you need to honestly assess your risk tolerance, trading experience, and available time. If you’re looking for passive Bitcoin exposure or can’t handle the stress of leveraged positions, traditional spot buying might be a better fit for your situation.

Conclusion

The Bitcoin futures market has come a long way since those first CBOE contracts in 2017. Now you can find everything from cash-settled CME contracts for institutional players to high-leverage perpetual swaps for retail traders hunting quick profits.

What hasn’t changed is that success in futures trading still comes down to understanding the mechanics, managing risk properly, and picking the right platform for your needs.

Whether you’re hedging existing Bitcoin holdings or speculating on price movements, the tools are more accessible and sophisticated than ever before.

FAQs

What is a Bitcoin futures contract?

A Bitcoin futures contract is an agreement between two parties to speculate on the price of Bitcoin by agreeing to buy or sell it at a specific price on a future date, settled in fiat currency like USD.

What is a Bitcoin futures option?

A Bitcoin futures option gives the holder the right, but not the obligation, to buy or sell a Bitcoin futures contract at a specified price (the strike price) by a certain date (the expiration date).

What crypto futures exchange has the highest trading volume?

Binance has the largest trading volume of any crypto futures exchange.

Who regulates crypto futures?

The Commodity Futures Trading Commission (CFTC) regulates crypto futures in the U.S.

Do I have to pay taxes on Bitcoin futures profits?

Yes. They are taxed by the federal government as capital gains under Section 1256, with 60% taxed as long-term gains and 40% taxed as short-term gains.