Introduction
The cryptocurrency market offers you investment opportunities as well as trading options. When you buy a coin in the spot section of an exchange, you basically invest your money for holding the coin for a long time. On the other hand, futures trading lets you speculate on the future price of a coin. Futures trading is either perpetual or quarterly. A perpetual futures contract, as is evident from the term itself, never expires. But a quarterly futures contract expires at the end of the quarter.
Futures Trading
Before going into the details of the quarterly futures contract, it is essential to understand what futures trading inherently is. Futures trading is an agreement to buy or sell an asset (like cryptocurrency) at a fixed price on a future date, no matter what the market price is at that time. This kind of trading is based merely on speculation, without actually buying or selling an asset. If your guess is right, you earn. You lose money, possibly all of it, if your speculation goes wrong.
For example, if $BTC is trading at $110,000, and you think it’s time for a correction, you open a short position, expecting Bitcoin to go down. If it really goes down, you earn a profit. However, if it continues soaring, you will start losing money until you are liquidated, or your stop-loss order is filled. On the other hand, if you are bullish, you open a long position to earn profit from an upward movement. But any downward movement deprives you of your funds.
Difference between Perpetual and Quarterly Futures Trading
Settlement on Expiry
One difference has already been pointed out in the introduction: that the perpetual contract can go on forever if the contract is not liquidated or if no stop-loss or take-profit order is filled; however, a quarterly future contract expires at the end of a quarter.
Trading Pairs
Another difference is that instead of being conducted in $USDT pairs, quarterly futures trade is dealt in with USD pairs. This is an advantage as $USDT is a stablecoin, yet it is a cryptocurrency that is subject to being de-pegged, delisted, etc.
Mark Price
Perpetual futures trading is exclusively based on the price on the exchange you are working on. The index price is made up of a moving average of the BTC/USD market price on the following exchanges: Bitstamp, Coinbase Pro, Kraken, Bittrex, and Binance. These markets are all equally weighted in the index. This index is used to calculate Mark Price.
Funding Fees
One major difference is that in perpetual futures trading, you need to pay a funding fee. The funding fee is between traders to keep the futures market price as close to the spot market as possible. This funding fee is paid every 8 hours. When the funding is positive, long positions pay short positions. If funding is negative, short positions pay long positions. This is a serious disadvantage, especially when you have to hold your position for a very long time. In quarterly futures, there is no funding fee, making it ideal for holding for an extended period.
How Quarterly Futures Contracts Work
Just as perpetual futures trading is a speculative game for an undefined time period, quarterly futures trading is a guesswork as to what the price of a coin will be at the end of the contract. The end of the contract occurs on the last Friday of March, June, September and December.
Selection of Coin and Contract
First of all, you have to select the coin you want to trade e.g. $ETH. Then you need to pick the quarterly contract. Every contract has a unique code. For example, you choose ETH-USD-0926. The last four digits of the contract name indicate when the contract expires. In the above-mentioned case, the contract expires on 26th September.
Short or Long Position
Subsequently, you decide whether you see a rise in price or a dip. If you speculate that the price will go up, you open a long position. You can open a short position if your analysis shows that a correction is due soon.
Setting the Leverage
The selection of leverage is the next step although it is optional. Leverage is the amount you borrow from the exchange to increase the amount in your position. But a new trader must avoid leveraging as much as possible because it increases the risk of loss manifold. High leverage brings liquidation levels closer to your entry price.
Settlement
The closing of your position takes place automatically on the expiry date. However, you can also close your position earlier if you feel satisfied with what you have earned, or you get too afraid to continue due to some black swan event like war. On the expiry date, the settlement will anyhow take place, and your profit or loss will be realized. The settlement of the quarterly futures trading is always in $BTC.
Delivery Fee
Like many other products on centralized exchanges like Binance or Coinbase, quarterly futures contracts use a tiered fee structure based on your trading level. But here’s the good part—if you’re a market maker (someone who adds liquidity by placing limit orders), some tiers actually reward you with negative fees. In simple terms, exchanges pay you a small rebate for helping keep the market active. So not only can you trade, but you might even earn a little extra just by being a smart participant.
It’s important to note that if you maintain an open position until the contract’s expiry, you’ll be subject to a delivery fee. Additionally, traders should be aware that opening new quarterly futures positions is not possible during the final 10 minutes leading up to expiry—this restriction ensures smooth settlement processing. When the settlement occurs on the delivery date, a settlement fee is applied to all positions being settled.
Conclusion
The sum and substance of the discussion is that quarterly futures trading is a professional form of perpetual futures trading. It used USD pairs instead of USDT. The settlement is always in $BTC. The trader has an option to close the position earlier, but if not closed before, it will automatically be closed on the expiry date. This form of trading is better than perpetual trading due to being free of funding fee which is charged after every 8 hours in perpetual contracts.
