A futures contract is an agreement to buy or sell a particular underlying asset at a pre-determined price at a specified time in the future. The buyer of a futures contract is obliged to buy and receive the underlying asset when the futures contract expires, while the seller is obliged to provide and deliver that on the expiration date.
In cryptocurrency trading, futures is a popular derivative product. Traders can use futures contracts to speculate on the market direction of the underlying cryptocurrency. If a trader long a futures contract and the price of the underlying asset rose and was traded at a higher on expiry date, the trader would make a profit. When the futures contract expires, all open positions will generally be settled at a price calculated by the pre-expiry 30-minute arithmetic average index price.
Contract Notional Value
The contract size, also known as the contract unit, is the notional value of the underlying asset the contract represents. Each futures contract represents a certain amount of cryptocurrency.
In general, there are three types of typical futures contracts terms: weekly, biweekly, and quarterly. Contract terms may vary in some cases.
- Weekly futures contract is delivered on the Friday nearest the trading day
- Bi-weekly futures contract is delivered on the second Friday nearest the trading day
- Quarterly futures contract is delivered on the last Friday of each quarter i.e. March, June, September, and December.
Leverage ratio typically ranges from 1x to 50x.