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Quarterly Futures: What Are They And How To Trade Them?

2020-06-12

Key Takeaways:

  • Crypto-futures contracts allow traders to speculate on the direction of the underlying asset.

  • With leverage, traders enjoy greater capital efficiency, gaining exposure to any digital asset at a fraction of its market value. 

  • Binance Futures offers one of the lowest fee structures in the crypto derivatives industry.

The crypto futures industry has grown exponentially, with trading volumes surpassing $2.85 trillion in January 2022. Although the crypto derivatives are relatively new, it is already challenging the spot market. 

On Binance Futures, crypto derivatives have surpassed spot markets as investors look for more options to utilize their digital assets. To further serve this growing demand, Binance Futures has launched its own quarterly futures contracts. 

What Are Futures Contracts?

A crypto-futures contract allows traders to speculate on the direction of its underlying asset, using leverage. It also enables traders to hedge against unfavorable price changes and mitigate the risk of an investment portfolio.   

Also known as fixed-maturities or deliverables, they represent an agreement to buy or sell the underlying asset at a predetermined price on a specified day and time in the future. 

Table 1: Contract Specifications

Ticker

BTCUSD Quarterly 0925

Underlying Trading Pair

BTCUSD

Contract Type

Quarterly

Tick Size

0.1 USD

Minimum Order Quantity

1 contract

Maximum Order Quantity

100,000 contracts

Maximum Number of Open Orders

200  

Settlement Asset

BTC

Contract multiplier

100 USD / contract

Price Limit

± 15%

Liquidation Fee

0.3%

Delivery Date

25 September 2020, 08:00:00 UTC

Delivery Fee

0.015%

Quarterly Futures contracts on Binance Futures offer the following characteristics:

  • Settlement in BTC - Contracts are denominated and settled in BTC. Hence, it provides ease for new users to participate in these markets.

  • Expiry/Delivery Date - BTCUSD Quarterly 0925 contract will expire on 25 September 2020, 08:00:00 UTC, users should note that no orders will be accepted 10 minutes before the time of expiration. 

  • Contract Multiplier - Contract multiplier represents the value of a contract. Each contract represents 100 USD. For example, there are 1,000 USD of BTCUSD Quarterly 0925 long position (100 USD x 10 contracts) and 2,000 USD of BTCUSD Quarterly 0925 short position (100 USD x 20 contracts).

More information can be found on our FAQs and guides.

Why Trade Quarterly Futures on Binance Futures? 

1. Lowest Fees In The Industry

Binance Futures offers one of the lowest fee structures in the crypto derivatives industry, where users can enjoy more benefits with BNB fee deductions.  

Table 2: Fee structure on Binance Futures

Level

30d Trade Volume (BUSD)

and/or

BNB Balance

USDT

Maker / Taker

USDT Maker/Taker

BNB 10% off

BUSD

Maker / Taker

VIP 0

< 15,000,000 BUSD

or

≥ 0 BNB

0.0200%/0.0400%

0.0180%/0.0360%

-0.0100%/0.0230%

VIP 1

≥ 15,000,000 BUSD

and

≥ 25 BNB

0.0160%/0.0400%

0.0144%/0.0360%

-0.0100%/0.0230%

VIP 2

≥ 50,000,000 BUSD

and

≥ 100 BNB

0.0140%/0.0350%

0.0126%/0.0315%

-0.0100%/0.0230%

VIP 3

≥ 100,000,000 BUSD

and

≥ 250 BNB

0.0120%/0.0320%

0.0108%/0.0288%

-0.0100%/0.0230%

VIP 4

≥ 600,000,000 BUSD

and

≥ 500 BNB

0.0100%/0.0300%

0.0090%/0.0270%

-0.0100%/0.0230%

VIP 5

≥ 1,000,000,000 BUSD

and

≥ 1,000 BNB

0.0080%/0.0270%

0.0072%/0.0243%

-0.0100%/0.0230%

VIP 6

≥ 2,500,000,000 BUSD

and

≥ 1,750 BNB

0.0060%/0.0250%

0.0054%/0.0225%

-0.0100%/0.0230%

VIP 7

≥ 5,000,000,000 BUSD

and

≥ 3,000 BNB

0.0040%/0.0220%

0.0036%/0.0198%

-0.0100%/0.0230%

VIP 8

≥ 12,500,000,000 BUSD

and

≥ 4,500 BNB

0.0020%/0.0200%

0.0018%/0.0180%

-0.0100%/0.0230%

VIP 9

≥ 25,000,000,000 BUSD

and

≥ 5,500 BNB

0.0000%/0.0170%

0.0000%/0.0153%

-0.0100%/0.0230%

2. Flexible Leverage  

Similar to BTCUSDT perpetual contracts, users can trade BTCUSD Quarterly 0925 contracts with leverage, enabling users to magnify small movements in price to potentially generate outsized profits. 

With leverage, users also enjoy greater capital efficiency as it enables them to gain exposure to the underlying crypto asset at a fraction of its market value. 

Advantages of Trading Futures

  • Flexibility - The futures market offers unparalleled flexibility, it allows traders to go long and short an asset using leverage. This flexibility also allows traders to create market-neutral strategies that offer uncorrelated returns to the broader market. 

  • Diversification - Futures are especially useful for portfolio diversification. Without the need to collateralize the full value of a crypto asset, futures contracts allow traders to gain exposure to an underlying asset at only a fraction of its market value. Thus, traders can diversify their portfolios efficiently.

  • Liquidity - With total trading volume reaching nearly $3 trillion dollars, the futures market offers deep liquidity that is extremely valuable to reduce financial risk. This robust liquidity supports the process of price discovery and allows traders to transact in the market swiftly and efficiently.

Two Strategies To Help Diversify Your Portfolio

Traditionally, professional traders access the futures market to identify alpha-generating strategies that offer uncorrelated returns to the general market. These same strategies can be applied to cryptocurrencies through the use of futures contracts. 

1. Basis Trading

Basis refers to the price difference between the futures contract and the underlying spot market. It can be positive or negative, but usually, futures contracts trade at a premium to the spot market. Typically, the further away a contract’s expiration date is, the larger the basis. 

A basis trade consists of a long position in the underlying crypto-asset and a short position in its derivative (in most cases, this refers to futures contracts or perpetual swaps). 

Essentially, basis trading exploits the price-differential of two markets and is commonly known as ‘cash and carry.’ 

To construct a Basis trade, at trader will:

  • Buy 1,000 BUSD worth of Bitcoin in the spot market.

  • Sell 10 BTCUSD Quarterly 0925 contracts.

  • At expiry, sell the remaining physical Bitcoin.

2. Swaps vs Futures

The shape of the futures curve is important to crypto hedgers and speculators, the curve indicates whether crypto futures markets are in contango or backwardation markets.

When a market is in contango, the forward price of a futures contract is higher than the spot price. Conversely, when a market is in backwardation, the forward price of the futures contract is lower than the spot price.

Historically, perpetual swaps tend to trade closest to the spot market as they have no expiry while quarterly futures contracts are priced much higher than a perpetual swap contracts. As such, traders can bet on the relative price difference between perpetual swaps and long-term maturity contracts by constructing a curve flattener trade or a steepener trade.

What Is a Curve Flattener?

A curve flattener expects the decline of the price spread between a long-term maturity contract and a perpetual swap contract. If the basis decline is greater than the funding rate, you pay on a long swap contract and the trade will generate a positive return.

To construct a flattener trade, a trader will:

  • Sell 10 BTCUSD Quarterly 0925 contracts.

  • Buy 0.1 BTCUSDT perpetual contracts.

  • Close positions as basis narrows or turns negative.

A curve flattener is a bearish trade with the expectation that futures prices will decline more than swap prices. In these situations, traders will profit from the basis decline as well as the interest earned from funding fees. 

What Is a Steepener?

A curve steepener expects the rise of the price spread between long-term maturity contracts and the perpetual swap contract. If the futures basis rise is greater than the funding rate paid on a short swap, the trade will generate a positive return.

To construct a steepener trade, a trader will:

  • Buy 10 BTCUSD Quarterly 0925 contracts.

  • Sell 0.1 BTCUSDT perpetual contracts.

  • Close positions as basis widens.

A curve steepener is a bullish trade with the expectation that futures prices will increase more than swap prices. In these situations, traders will profit from the basis increase as well as the interest earned from funding fees. 

For more information on market neutral and non-directional strategies, read: Exploring Market-Neutral Strategies in Crypto-Derivatives

Closing Thoughts

The introduction of deliverable futures contracts brings the range of derivative products on Binance Futures to four broad classes: Leveraged Tokens, Futures, Perpetual Swaps, and Options

Binance’s growing ecosystem allows users to trade conveniently with a single wallet and according to their trading preferences. With its Nasdaq-level matching engine, which routinely processes up to 100,000 orders per second with an average latency of 5 milliseconds, users enjoy a seamless trading experience with no interruptions or delays. 

This new addition enables users to better utilize their cryptocurrency holdings and allows traders to diversify their portfolios into non-directional strategies. 

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