Spot, margin and futures: a risk-first primer

Spot trading buys the asset itself with money you have. Margin trading buys it with borrowed money. Futures trade a contract whose value tracks the asset, usually with leverage and without ever owning it. The differences in mechanics are technical; the difference that matters is that only spot positions cannot be closed for you against your will.

What does spot trading actually give you?

You exchange money for the asset and it is yours. You can withdraw it to self-custody, use it on-chain, or hold it indefinitely with no ongoing cost. A fall in price is unrealised until you sell, and no counterparty can force that sale. This is the only structure in the list where time is on your side.

How does margin work?

The platform lends you funds against collateral you post, letting you take a larger position than your balance supports. You pay interest for the loan, and the platform monitors the ratio between your collateral and your exposure. If the position moves against you far enough, it is liquidated — sold to repay the loan, with fees, whether or not the market recovers ten minutes later.

• Isolated margin ring-fences collateral to one position, capping the damage to that trade.
• Cross margin shares collateral across positions, which improves efficiency and lets one bad trade endanger the rest.
• Interest accrues continuously and is charged regardless of whether the trade works.
• Liquidation includes a penalty, so the realised loss is worse than the price move alone suggests.

What are futures, and how are crypto futures different?

A futures contract is an agreement whose value tracks an underlying asset. Traditional contracts expire on a set date. Crypto markets are dominated by perpetual contracts, which never expire and instead use a periodic funding payment between longs and shorts to keep the contract price near spot.

Because there is no expiry, a perpetual position can be held indefinitely — for as long as you can pay the funding and survive the volatility. Our guide to perpetual swaps and funding rates covers that mechanism in detail.

How do the three compare?

What should decide your choice?

Start from the question of what you are trying to do. If the goal is exposure to an asset you believe in over years, spot with self-custody answers it completely and cannot be taken away from you. If the goal is hedging an existing holding, a small short futures position can do that precisely. If the goal is amplifying returns, be honest that you are amplifying variance, and that the mechanism that ends the trade is not under your control.

• Size positions by the loss you can accept, not by the leverage the platform allows.
• Know your liquidation price before you enter, and treat it as the real stop.
• Prefer isolated margin when learning, so one trade cannot take the account.
• Account for funding and interest — a position that is right about direction can still lose to carry.
• Read the venue's insurance fund and auto-deleveraging rules; they decide what happens in a violent move.

Order mechanics matter more here than anywhere else — our guide to market, limit and stop orders covers how each behaves when the market is moving fast. If you are comparing venues for active trading, our best exchanges for day trading ranking scores them on execution and fees.

How is the liquidation price calculated?

Liquidation happens when your margin ratio falls below the maintenance requirement — not when your position hits zero. The maintenance margin is a percentage of position notional that must remain covered by collateral, and it typically rises with position size in tiers, so a larger position is liquidated earlier than a small one at the same leverage.

Two details decide how much room you actually have. First, most venues liquidate against a mark price derived from an index of spot venues rather than the last traded price on that exchange, which protects you from a single wick but means an index move you cannot see on your own chart can still close you. Second, liquidation carries a fee, and in a fast market the position may be closed at a worse price than the trigger, with an insurance fund covering the shortfall.

• Find the liquidation price the platform displays before entering, and treat it as the real risk boundary.
• Adding collateral moves it; adding size moves it the wrong way.
• Check whether your venue uses tiered maintenance margins — the effective leverage falls as size rises.
• Understand auto-deleveraging: on some venues, profitable traders can be closed out to cover shortfalls.