Trading futures contracts
is a convenient way to speculate on the price of a financial asset. When it comes to cryptocurrency trading, Binance Futures
is one of the largest futures exchanges out there. Binance
offers a robust trading engine that allows traders and hedgers to speculate on many different cryptocurrencies. It also offers high-leverage trading and multiple collateral
Most futures products listed on Binance Futures
are perpetual futures contracts
, meaning the contracts don’t have an expiry date. However, there are many ways to speculate on the price of financial instruments using futures contracts, and one of these is quarterly futures.
In this article, we’ll go over how quarterly futures work and what you need to know if you want to trade them on Binance
If you’d like to read more about futures and forward contracts first, check out our article about them
A futures contract is an agreement to buy or sell an asset at a predetermined price at a future date. This date is called the expiry – this is when the contracts settle and the assets are delivered.
quarterly futures are settled in cash. What does this mean? Cash settlement simply means that the underlying asset is delivered in the form of currency. In the case of Binance
quarterly futures, this asset is BTC
The quarterly futures contracts on Binance
expire on the last Friday of each quarter. For example, the BTCUSD 0925 contract will expire on the last Friday of 2020 Q3 – 25th September 2020. This may also be called the delivery date since this is when the underlying asset (BTC) is delivered.
In traditional financial markets such as the stock market, derivatives products attract a considerably higher trading volume
than spot markets. We also see this in the cryptocurrency
markets. There is a higher volume and deeper liquidity
in futures markets when compared to spot markets. So, if traders think a particular asset will perform well, trading futures can be a great way to speculate on future price movements.
The margin used for Binance
quarterly futures is BTC, the contracts are settled in BTC, and the trading fees are also paid in BTC.
Just as other Binance products, the quarterly futures contracts follow a multi-tier fee system. However, there’s an added benefit. Some tiers also offer negative fees (or fee rebates) for makers
. This means that traders who provide liquidity
to the market essentially get paid for it.
If you have an open position upon expiry, you’ll have to pay a delivery fee. Please note that you won’t be able to open quarterly futures positions 10 minutes before the expiry. The settlement fee follows the Fee Schedule
and is charged as a taker fee for all positions settled on the delivery date.
The tick size on quarterly futures products is $0.10. This means that price changes in the contract happen in increments of $0.10. In contrast, the tick size of Binance perpetual futures
products is $0.01. Also, you should be extremely aware of liquidation
. Keep a close eye on the maintenance margin requirements and make sure you exercise proper risk management
It’s also worth noting that the higher leverage you use, the smaller the maximum position size is that you can open. Would you like to know about a simple formula for position sizing? Check out How to Calculate Position Size in Trading
So, we already know the main difference – quarterly futures expire, perpetual futures don’t. But what else is different about them?
Some futures contracts
will automatically “roll over” to the next contract upon expiry. This means that when the current contract expires, open positions are essentially transferred to the next contract. In fact, this is essentially how perpetual futures contracts work, just not on a quarterly basis. However, this isn’t the case with Binance quarterly futures. Once the expiry date comes, the quarterly contracts expire to the average price of the last hour and are settled in BTC.
As opposed to perpetual futures, the price index for quarterly futures is based on the BTC/USD market, and not the BTC/USDT market. This allows traders to hedge
against the risk of USDT decoupling from USD.
The index price is made up of a moving average
of the BTC/USD market price on the following exchanges
: Bitstamp, Coinbase Pro, Kraken, Bittrex, and Binance
. These markets are all equally weighted in the index. This index is used to calculate the Mark Price, which is used for liquidations. Not sure what the Mark Price is? Check out our chapter about it in our futures guide
Another key difference is the fees you’ll have to pay. If you’re trading perpetual futures, you’ll have to pay a funding fee
every 8 hours. This funding payment is paid between market participants to keep the perpetual futures market price close to the spot price. You could think of it as something similar to interest rate, but it’s paid between traders.
When the funding is positive, long positions pay short positions, when funding is negative, shorts pay longs. However, quarterly futures have no funding fees associated with them. This makes them ideal for longer-term holding since the funding fee won’t gradually reduce the position in small chunks as time goes on. At the same time, perpetual futures may be better suited for you if you’re looking for short-term trading. It all depends on your risk
profile and trading style.
If you’d like to read more about perpetual contracts, check out What Are Perpetual Futures Contracts?
One advantage of Binance
quarterly futures contracts is that you can use BTC as margin and that they are settled in BTC. This means that you have to commit your initial margin in BTC as well.
Why is this a benefit? Using BTC allows large traders (whales
) or even retail traders to hedge
their BTC holdings. How would they do that? For example, they could open a short position. If the price of BTC goes down, they can counteract their USD losses with their BTC profits. In other words, the USD value of BTC may go down, but they would gain more BTC by profiting off the short position.
In addition, these contracts are a great way to simply increase your BTC holdings. Since they’re settled in BTC, profits can increase your long-term BTC stack.
Binance quarterly futures can also open up favorable arbitrage opportunities for larger traders. Let’s learn about how that works.
There are two concepts we need to understand here: contango and backwardation. Contango is when the futures contracts are trading higher than the spot price of the underlying asset. Backwardation is when the futures contracts are trading lower than the spot market.
In both of these cases, large traders (like whales
or hedge funds) can profit from the difference between the spot price and futures price, however small that difference may be. They do that by buying futures contracts and selling spot holdings at the same time, or vice versa. However, this typically requires complex hedging
and risk management
strategies and isn’t recommended for beginner traders.
quarterly futures allow traders to speculate on the price of a financial asset using their bitcoins
. Quarterly futures contracts are settled in BTC and may be ideal for swing trades, as there is no funding fee associated with them.
Futures trading can be a great way to speculate on the crypto markets. If you’d like to read a comprehensive guide about it, check out The Ultimate Guide to Trading on Binance Futures