Futures Contracts Explained: Futures contracts are agreements to buy or sell an asset at a predetermined price on a specified future date. However, in crypto, Perpetual Futures are much more common. These contracts do not have an expiration date, allowing you to hold positions indefinitely as long as you meet margin requirements.
Leverage & Margin:
Leverage: This is the multiplier. 10x leverage means for every $1 of your own capital, you can control $10 worth of the asset. Binance allows very high leverage (e.g., up to 125x for some pairs), but lower leverage is highly recommended for beginners.
Initial Margin: The amount of your own capital required to open a leveraged position.
Maintenance Margin: The minimum amount of capital you need to maintain your open position. If your equity falls below this, you risk liquidation.
Long vs. Short:
Long: You bet the price will go up.
Short: You bet the price will go down.
Funding Rate: This is unique to perpetual futures. Every 8 hours (on Binance), traders holding long or short positions pay or receive a small fee from each other. This mechanism helps keep the perpetual futures price tethered to the spot market price. If the funding rate is positive, longs pay shorts. If negative, shorts pay longs. Ignoring funding rates can eat into your profits, especially for long-held positions.
Liquidation Price: This is the price at which your position will be automatically closed by the exchange, and you will lose your initial margin (and potentially more if "auto-deleveraging" occurs in extreme market conditions). The higher the leverage, the closer your liquidation price is to your entry price.