Introduction
Trading futures contracts is a method of speculating on the price of a financial asset. Binance Futures is one of the largest futures exchanges where you can trade cryptocurrencies. Binance offers a reliable trading method that allows traders and hedgers to speculate on various cryptocurrencies. They are also offered high leverage trading and multiple collateral options.
Most futures products available on Binance Futures are perpetual futures contracts, which means these contracts do not have an expiration date. However, there are many methods of speculating on the price of financial instruments using futures contracts, and one of them is quarterly futures.
In this article, we will explain how quarterly futures work and everything you need to know to trade on Binance.
If you want to learn more about futures and forward contracts, check out this article.
What are quarterly futures contracts?
A futures contract is an agreement to buy or sell an asset in the future at a predetermined price. The date of sale is called expiration: at this point contracts are settled and assets are distributed.
Quarterly futures on Binance are settled in monetary terms. What does it mean? Cash settlement means that the underlying asset is in the form of currency. In the case of Binance Quarterly Futures, this asset is Bitcoin.
Quarterly futures contracts on Binance expire on the last Friday of each quarter. For example, the BTCUSD 0925 contract is scheduled to expire on the last Friday of the third quarter of 2020 - September 25, 2020. This date is also called the delivery date because this is when the underlying asset (BTC) is delivered.
In traditional financial markets, such as the stock market, derivatives attract more trading volume than spot markets. We see the same situation in the cryptocurrency markets. Futures markets have greater volume and higher liquidity compared to spot markets. So, if traders think that a particular asset will perform well, then trading futures can be an excellent method of speculating on future price movements.
How do quarterly futures contracts work?
The margin used for Binance Quarterly Futures is settled in Bitcoin, just like contracts with trading commissions.
Similar to other Binance products, quarterly futures contracts operate on a tiered commission system. However, they have additional benefits. Some levels also offer negative commissions (or rebates) for makers. This means that traders who provide liquidity to the market get paid for it.
If you have an open position, you will be required to pay a delivery fee when it expires. Please note that you will not be able to enter quarterly futures positions 10 minutes before expiration. The settlement fee for the position is based on the rates in the “Commissions” section and is charged as a taker commission for all positions settled on the delivery date.
The tick size for quarterly futures products is $0.10. This means that the contract price changes in increments of $0.10. In contrast, the tick size of Binance's perpetual futures products is $0.01. Additionally, you must monitor the liquidation carefully. Strictly follow maintenance margin requirements and implement proper risk management.
It's also worth noting that the higher your leverage, the lower the maximum position size available to you. Want to know a simple formula for position sizing? Check out our article How to Calculate Position Sizing in Trading.
Quarterly futures and perpetual futures - what's the difference?
So, we have already outlined the fundamental difference: quarterly futures expire, but perpetual futures do not. But how else are they different?
Some futures contracts automatically "roll over" to the next contract upon expiration. That is, open positions in the current contract are transferred to the next contract. This is how perpetual futures contracts work, but this is not the case with Binance quarterly futures. After expiration, quarterly contracts expire at the average price of the last hour and are settled in Bitcoin.
Unlike perpetual futures, the price index for quarterly futures is based on the BTC/USD market rather than the BTC/USDT market. This allows traders to hedge the risks of dividing USDT and USD.
The price index consists of the moving average of the BTC/USD market across the following exchanges: Bitstamp, Coinbase Pro, Kraken, Bittrex and Binance. All these markets have equal weight in the index. The index itself is used to calculate the mark price, which is used for liquidation. Don't know what "labeling price" is? Find out more in our futures guide.
Another key difference is the fees you will have to pay. If you trade perpetual futures, you must pay a funding fee every 8 hours. This payment is made between market participants to keep the price of the perpetual futures market close to the spot price. This is similar to the interest rate that is paid between traders.
With positive financing, long positions pay short positions, and with negative financing, short positions pay long positions. However, there are no funding fees on quarterly futures. This makes them ideal for long-term holding: financing fees will not phase out the position. In turn, perpetual futures are more suitable for those who are interested in short-term trading. It all depends on your risk profile and trading style.
If you would like to learn more about perpetual futures contracts, check out our article on What Are Perpetual Futures Contracts.
Benefits of Trading Binance Quarterly Futures Contracts
One of the benefits of Binance quarterly futures contracts is the ability to use Bitcoin as margin, settled in BTC. This means that you must also deposit your initial margin in Bitcoin.
Why is this considered an advantage? Using Bitcoin allows large traders (whales) and even retail traders to hedge their BTC holdings. How exactly? For example, they may open a short position. If the price of Bitcoin falls, they will offset the loss in dollars with profits from Bitcoin. In other words, the price of Bitcoin in US dollars may decrease, but they will receive more Bitcoin from the profits from the short position.
In addition, such contracts are a great way to increase Bitcoin reserves. Since they are settled in Bitcoin, profits can increase your long-term BTC stack.
Quarterly futures on Binance can also open up a lot of arbitrage opportunities for large traders. Let's see how it works.
There are two concepts to note here: contango and backwardation. Contango means trading futures contracts above the spot price of the underlying asset. Backwardation, on the other hand, means trading cheaper than the spot market.
In both cases, large traders (such as whales or hedge funds) can profit from the difference between the spot price and the futures price, regardless of its size. To do this, it is enough to simultaneously buy futures contracts and sell spot assets. Or vice versa. However, this is not recommended for new traders as it usually requires complex hedging and risk management strategies to be followed.
Summary
Binance Quarterly Futures allows traders to speculate on the price of a financial asset using Bitcoin. Quarterly futures contracts are settled in Bitcoin and are ideal for swing trades as there are no funding fees.
Futures trading is an excellent method of speculating in the cryptocurrency markets. If you want more detailed information, read our Advanced Guide to Trading on Binance Futures.
