Delivery futures
Delivery futures originated from a practical need: organise dated deliveries of physical goods at pre-agreed prices — and later evolved into a main tool for pure price speculation, including perpetual markets (below). On futures markets the venue (or a linked clearing house) stands in the middle of obligations between parties. On a physical delivery future, one side takes the obligation to receive a defined amount of goods (e.g. oil) at a defined price on a defined date; the other side takes the obligation to deliver on the same terms. Day to day, each side holds a contract on the exchange’s books — not a warehouse receipt.
People who only want to earn from price going up or down do not need physical delivery. Futures markets adapted to that demand as a more efficient alternative to margin spot (borrow the asset or cash and trade inventory). The two sides got standard names — long and short — and orders use the same language.
- Long — you stand to gain if price rises (aligned with the side that would receive delivery).
- Short — you stand to gain if price falls (aligned with the side that would deliver).
Matching interests works like spot: limit and market orders meet on an order book. On futures, an order expresses an interest to open or close a long or short — four combinations (e.g. “I want to go long” is long interest). A position is what remains after fills: long if you opened long and have not fully closed; short if you opened short and have not fully closed. None of that is buying or selling the underlying the way spot does.
Open interest (OI) is the total size of outstanding long (and matching short) contracts market-wide — always equal on both sides. Volume is how much traded (every match counts).
Futures are a zero-sum game among traders (fees aside): what one side earns in P&L, the other loses.
Venues charge fees on open/close. Typical crypto futures maker/taker fees are often on the order of a few basis points (e.g. ~0.01%–0.05% of notional — check each venue). Holding a dated future itself usually has no extra daily fee (perpetuals add funding — below).
Price convergence and basis
A delivery future’s price can trade above or below the underlying for most of its life — free float within arbitrage bounds. As expiry approaches, the contract is pulled toward the underlying: convergence. Why: at expiry the contract becomes the underlying (delivery or cash settlement). Any leftover gap is arbitrage — sell rich futures against spot, or buy cheap futures and reverse. Earlier, carry (storage, financing, etc.) can justify a wider basis; near expiry that room shrinks to nearly nothing. Basis is that gap — roughly futures price minus underlying (spot or index) price. Venues may say premium or discount instead.
Manipulation protection
(index and mark prices. older tradfi exchanges and modern binance)
Last traded price on a single futures book can spike. Spot on the same underlying (no leverage, real inventory) is usually more stable. Liquidating or settling everyone off one futures wick is unfair vs that spot reality — and gameable if last trade alone runs margin.
Traditional futures markets used settlement committees, closing ranges, and later index-style references. Modern venues (including crypto exchanges such as Binance) publish:
Index and mark are the main anti-manipulation tools for margin and liquidations on both dated futures and perps.
Linear vs inverse
Futures also differ by how margin and P&L are denominated — common language in crypto; the same idea exists wherever contracts are cash-margined vs coin-margined. Linear (quote-margined): margined and settled in a quote currency (often USDT / USD). P&L is in dollars for a given move; profit for a long scales roughly linearly with size × price change. Example style: BTCUSDT. Inverse (base- / coin-margined): margined and settled in the underlying (e.g. BTC), often quoted in USD. You post coin as margin; wins and losses are more or less coin. P&L in coin is not linear in price the way quote P&L is (settlement ties to the inverse of price). Classic example: BTCUSD coin-margined contracts.
Both can be delivery or perpetual. Linear vs inverse is settlement currency and P&L shape; delivery vs perpetual is expiry and how price is anchored (basis vs funding).
Perpetual futures
Delivery futures are awkward for pure continuous speculation: you must roll when the contract expires, and basis can wander until convergence. A perpetual has no expiry — continuous exposure, high leverage, and a funding mechanism that keeps it near the underlying without delivery. The modern perpetual swap was popularized in crypto by BitMEX in 2016. Non-expiring futures have older academic roots (e.g. Shiller, 1992), and earlier experiments existed; BitMEX-style design is what most people mean by “perps” today. In many traditional markets, dated futures still dominate; in crypto, perpetuals usually carry most derivatives volume. There is no expiry to force convergence. Instead:- Index defines the target underlying value
- Funding pays between longs and shorts so the perp is pushed toward that target
- Mark still protects liquidations from last-trade noise
- If the perp trades rich (above target), longs typically pay shorts
- If the perp trades cheap (below target), shorts typically pay longs