Crypto Futures: Contract Terms, Funding and Liquidation
Crypto derivatives create exposure through a contract. Understand settlement, collateral, funding and liquidation rules before interpreting a chart or backtest.
Key Takeaways
- Read the contract units and settlement terms.
- Initial margin and maximum loss are different.
- Funding can be paid or received.
- Chart simulation does not automatically reproduce venue liquidation.
Dated Futures and Perpetuals Differ
Dated futures have a specified expiry or settlement process; delivery can be cash or an asset according to the contract. Perpetual contracts usually have no scheduled expiry and commonly use funding to encourage alignment with a reference price. Neither structure guarantees that the traded price equals spot at every moment.
Read the Contract Units
Identify whether the contract is linear or inverse, its multiplier, settlement currency, index and mark-price methodology. Holding a derivative does not necessarily mean owning its underlying coin, though some contracts require crypto collateral. Price-based profit calculations must use the contract’s units.
Margin Is Not a Loss Budget
Initial margin permits opening exposure; maintenance margin and venue rules determine liquidation. A five-times leverage setting does not imply an exact twenty-percent adverse move before liquidation. Fees, mark price, other positions and collateral changes affect the threshold. Cross and isolated margin have different account-exposure implications.
Funding Can Be Paid or Received
Funding direction, interval and rate vary by contract and time. It is not always a charge to every position. A multi-day test should include actual or explicitly modeled funding and transaction costs. A TradingView price-chart strategy does not automatically reproduce a venue’s funding, liquidation or insurance process.
Evaluate a Strategy Without a Universal Leverage Rule
Define signals, sizing, exits and failure handling before testing. A stop can slip or remain unfilled depending on type; it is not guaranteed liquidation protection. This page does not recommend a beginner leverage level or claim an observed 52% win rate. Check current venue eligibility and liability terms, including possible losses beyond posted margin.
This page is for informational purposes only and does not constitute investment advice. Trading cryptocurrency carries substantial risk of loss. Past performance does not guarantee future results. Always consult a qualified financial advisor before making trading decisions.
Frequently Asked Questions
Is a perpetual the same as a dated future?
No. Expiry and settlement differ. Funding and reference-price mechanisms depend on the specific perpetual contract.
Does five-times leverage fix the liquidation price?
No. Maintenance margin, fees, collateral, mark price and account mode also matter. Use the current contract specification and account calculation.
Is funding always a cost?
No. A position can pay or receive funding under the applicable rate and direction; include both possibilities.
Does a stop guarantee protection against liquidation?
No. Trigger method, liquidity, execution and venue failures can affect the outcome.
How much leverage is safe?
No universally safe level is established here. Assess exposure and possible loss rather than treating a leverage setting as a safety guarantee.