What are crypto futures, why they matter, and the benefits they provide

In recent years, futures have begun to play a central role in the crypto markets. But if many of us were asked to explain what eternal future is, we would break out in a cold sweat.

Andrew Weiner, VP of MEXC, is on hand to explain how crypto futures work, what they are used for, and provide some fascinating statistics on how big this market actually is.

1. Hello! First…can you give us a basic definition of what crypto futures are?

So basically, a futures contract is an agreement to buy or sell a commodity, currency or other instrument at a predetermined price at a specified time in the future.

Unlike the traditional spot market, trades in a futures market are not “settled” immediately. Instead, two counterparties will trade a contract that defines the settlement at a future time.

2. How have the crypto futures markets developed in the last four years?

When it comes to the product, the user experience requirements for future products are getting higher and higher. For example, perpetual futures have become mainstream futures products – and their features need to meet more user needs in terms of leverage multiples, prices and position opening. However, liquidity is the indicator that futures users are most concerned with, and it is a decisive factor on which trading platforms compete.

Over the past three years, the trading scale of futures contracts has shown explosive growth. The annual trading volume for perpetual futures in 2021 reached $57 trillion — an increase of 358% compared to the trading volume for all derivatives in 2020. The trading volume for spots at that time was $49 trillion. Trading volume for futures remained stable at $1 trillion in the 2nd quarter of this year, outperforming spot trading.

3. Why are futures products necessary?

Futures products are essential in the financial market. There are three main tools for this product.

They were mainly invented for hedging and risk management. Another advantage includes short exposure, as traders can bet against an asset’s performance even if they have no direct exposure to it. Leverage is another tool, as traders can enter positions larger than their account balance.

4. Can you explain, in a simple way, how perpetual futures work?

Perpetual futures are a special type of futures contract.

Unlike the traditional form of futures, they do not have an expiration date, meaning traders can hold a position for as long as they want.

Other than that, they are traded based on an underlying index price. This consists of the average price of an asset, according to major spot markets and their relative trading volume.

Therefore, unlike conventional futures, perpetual futures often trade at a price very similar to spot markets. However, under extreme market conditions, the marked price may deviate from the spot market price.

Liquidity is essential to any financial market and it refers to how quickly and efficiently you can buy or sell an asset without affecting its price. A market with higher levels of liquidity makes it easier for buyers and sellers to find other traders and transact at the prices they prefer. Conversely, lower liquidity can make it difficult to carry out transactions, thereby increasing the bid-ask spread.

5. Some in crypto say that product managers, not users, should define products. What do you think about this?

At MEXC, the users have always defined the product, which is our style. Before each major upgrade of our products, we collect and rely on user suggestions for optimization. The principle of “customer first, service first” is also reflected in our products — and we are the market leader when it comes to liquidity. Let’s take BTC/USDT futures as an example. Within five basis points of the average price, MEXC offers liquidity of around $100 million.

6. Why is it important for crypto trading platforms to be user-friendly — and how does MEXC achieve this?

It is crucial. In terms of service, we have a 24/7 customer support team staffed by people who can respond to users in as little as 30 seconds.

We also have angels and staff in the community – covering more than 20 countries and regions with different languages.

When it comes to crypto listings, we are committed to market insight and nimble in action to maintain our one-stop trading and servicing capabilities for spot, futures, margin and ETF trades.

At the same time, we are a platform that insists on independent research and development. Our core team has professional financial product logic and prioritizes technical security.

We upgrade our key trading system every six months to improve the trading engine’s matching efficiency, ensure security and stability, and continuously optimize trading depth.

7. What are things to remember about futures trading?

First of all, when choosing futures trading, you need to choose a good trading platform. The criteria are good liquidity and a safe and stable trading system.

Good liquidity can reduce transaction costs and avoid the candlestick pattern of stick bars in unexpected market conditions.

The multi-layer and multi-cluster system architecture developed independently by MEXC ensures that users can trade in a safe and stable environment.

When it comes to trading techniques, you should use scientific position management and trade cautiously in extreme market conditions when prices skyrocket and plummet.

8. Some people in the crypto world say that product managers, not users, should define products. What do you think about this?

At MEXC, the users have always defined the product, which is our style. Before each major release, we collect and refer to user suggestions for platform optimization. The principle of “customer service first” is also reflected in the products.

9. There are many crypto trading platforms out there. What makes MEXC different, what are the benefits offered?

We provide users with an all-in-one destination where they can trade the world’s most popular assets.

We thrive on feedback – and when users learn about new and popular projects on the market, their first instinct is to check MEXC to find them.

MEXC is a market leader when it comes to liquidity across spot, leveraged ETFs and futures – and our users experience the benefits of this every day.

Our user-centric approach, agile response to the market, fast execution and experienced financial product logic – plus a top security team – add up to an unforgettable experience.

The material is delivered in collaboration with MEXC