How Risky Are Crypto Futures?
Crypto futures are highly popular among traders, with the volume of Bitcoin contracts reaching $1.96 trillion in May 2025 on top centralised exchanges (CEXs).
One of the reasons behind crypto futures' popularity is that they enable traders to amplify their potential gains with the use of leverage. They are also excellent for hedging and shorting crypto assets, which you can trade without actually purchasing the underlying instruments.
However, leverage also comes with greater risks, as it could increase the chances of liquidation and lead to greater losses. Moreover, crypto futures are complex financial instruments that are not suitable for beginners or risk-averse traders.
Following a brief overview of the contracts, we will take a detailed look at the potential rewards and risks involved in crypto futures trading. On top of that, we will also explore a few strategies to keep your risks at a minimum while trading crypto asset futures.
What Are Crypto Futures?
Crypto futures are a type of derivatives whose value follows a single or a basket of underlying assets (e.g., Bitcoin, Ethereum, or Solana).
Originating from the traditional finance industry, standard forms of futures represent contracts to buy or sell an underlying asset at a set price at the expiration date. Unlike with options, the buyer has the obligation to purchase the financial instrument at expiry, there's no option to let the contract expire without the execution of the trade.
Instead of the traditional forms of contracts, futures trading is normally offered in perpetual futures in the crypto space. In contrast to conventional futures, perpetuals don't expire, enabling traders to hold them indefinitely.
As they don't have an expiration date, perpetual futures use the funding rate as a mechanism to track the underlying asset's spot price as closely as possible. In addition to the rare case of converging to zero, the funding rate's value can be either:
Positive: When the funding rate turns positive, it may indicate an overall bullish market sentiment. In this case, the futures price is higher than the spot price, requiring buyers (longs) to pay sellers (shorts) the funding amount.
Negative: A negative funding rate may be the signal of an overall bearish market sentiment. Here, the futures price is lower than the spot price. Consequently, shorts and paying the funding amount to longs.
As they offer traders a multitude of benefits, crypto futures are widely popular in the crypto industry. These range from amplified gains through leveraged positions to hedging against market risks and maintaining profitability in the bear market with shorting. Moreover, traders can also benefit from higher liquidity and more cost-efficient fees in the crypto futures market than in the spot market.
However, the above advantages come with higher risks for traders, which include greater potential losses due to liquidations, complexity for beginners, regulatory risks, and market volatility.
What Are the Potential Benefits of Crypto Futures?
Crypto futures provide multiple benefits to traders, including:
Amplified Gains: As a type of derivatives, crypto futures enable traders to use leverage and amplify their exposure to the asset they’re longing or shorting. Consequently, they have the chance to realise more significant returns than buying and holding the asset.
Hedging: Opening trades in the opposite direction of existing trades enables traders to hedge against market risks. This way, they can manage their risks efficiently and offset the primary position's potential losses with a futures trade.
Shorting: With crypto futures, traders can short (sell) cryptocurrencies, allowing them to generate potential profits even during long-lasting bear markets.
No Ownership: When you trade crypto futures, traders have no ownership over the underlying assets represented by the contracts. This is both an advantage and a disadvantage. Regarding the former, the primary benefit is that they don't have to worry about purchasing, storing, or transferring crypto to trade futures. All traders need to do is buy the contracts to gain exposure to the underlying asset.
High Liquidity: Accounting for the majority of the overall crypto trading volume, the crypto futures market is highly liquid, offering traders a seamless trading experience.
Low Trading Fees: In most cases, futures pairs have lower trading fees than spot pairs. For example, VALR charges only 0.07% taker fees for perpetual pairs compared to spot crypto-to-crypto pairs' 0.1% taker fees.
What Risks Are Involved in Crypto Futures Trading?
Despite offering multiple benefits, crypto futures pose various risks to traders, such as:
Liquidations: With leverage, traders borrow capital from the trading platform (or its users) to amplify their potential gains. However, doing so increases the risk that a position falls below the maintenance margin. When that occurs, a margin call will take place, which will be followed by a liquidation if you don't deposit additional collateral. In the case of a liquidation, the exchange forcefully closes the trader's position, which may result in the partial or complete loss of his initial margin (the assets deposited by the trader to open the leveraged position).
Market Volatility: Volatility in the crypto market is a double-edged sword, as it can increase both traders' potential profits and losses. In the context of risks, the volatile nature of digital assets makes prices unpredictable, which can substantially increase the chances that a liquidation may wipe away the trader's initial deposit.
Regulatory Risks: Due to the high-risk nature of crypto futures, trading them is banned or restricted in multiple jurisdictions, such as Canada and the United Kingdom.
Complexity: Crypto futures are complex financial instruments, which may not suit traders with limited knowledge or experience in digital asset trading.
Risk Management Strategies for Crypto Futures
While futures trading is risky, there are multiple strategies traders can use to manage their risks and minimise their potential losses.
First, setting a stop-loss order is the most basic, yet one of the most efficient ways to keep traders' risks in check. By automatically closing their positions when the price of an asset falls below a certain level, they can minimise their potential losses.
Spreading risk across various trading pairs is also an excellent risk management strategy. This strategy works best when traders diversify their portfolio across not just different instruments but asset classes as well. Consequently, they can decrease the impact of a potential bear market or crypto market crash.
While technical analysis (TA) plays an important role in crypto futures trading, traders should also stay informed and keep up with the latest market news and trends. This way, they can assess an asset's strength over a period and future outlook.
As a critical rule of risk management, traders should only risk capital they can afford to lose. Doing so prevents unprofitable trades from wiping out their savings. It is also recommended that traders start small and scale gradually so they can decrease the risks of great losses at the start of their journey into digital asset trading.
Finally, traders may also open a new futures position in the opposite direction of an existing crypto futures position to hedge against market risks. While this strategy may limit their profitability, it could significantly decrease the impact of unfavorable price movements on their portfolio.
Trade Crypto Futures on VALR
On the one hand, crypto futures empower traders with the ability to realise greater potential gains, short digital asset pairs, hedge against market risks, as well as take advantage of high liquidity and competitive trading fees without owning the underlying assets.
On the flip side, crypto futures trading is a high-risk activity, with the potential risks involved ranging from market volatility and liquidations to regulatory risks and the complexity of the contracts. That said, you can keep your risks in check with strategies, such as diversifying your assets, staying informed with the latest news, setting stop-loss orders, opening futures positions in the opposite direction of existing trades, and only risking what you can afford to lose.
Overall, due to the complexity and the high risks involved, crypto futures are not suitable for beginner and risk-averse traders. However, if they implement effective risk management techniques into their strategies, crypto asset perpetuals might be a fitting choice for those who are comfortable taking greater risks to achieve more sizeable rewards.
So, are you ready to get started with crypto futures trading?
Frequently Asked Questions
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Crypto futures trading is considered high-risk due to factors like leverage, market volatility, regulatory restrictions, and contract complexity. It is not suitable for beginners or risk-averse traders.
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The main risks of crypto futures trading include liquidations from leveraged positions, unpredictable market volatility, regulatory bans or restrictions, and the complexity of the contracts, which can lead to significant losses, especially for inexperienced traders.
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate.
VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).
Futures trading is provided by VALR DAM Pty Ltd as a Juristic Representative of CAEP Asset Managers Pty Ltd (FSP number: 33933) an authorised financial services provider.
Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
