Understanding Delivery Contracts in Cryptocurrency Futures
Digital currency futures contracts are financial derivatives allowing traders to speculate on cryptocurrency prices without owning the underlying assets. Among these, delivery contracts stand out as agreements where the underlying asset must be physically delivered upon expiration.
Key Features of Delivery Contracts
- Settlement Date: Contracts expire on a predetermined date (e.g., monthly, quarterly).
- Physical Delivery: Traders receive/deliver the actual cryptocurrency.
- Price Anchoring: Settled at the spot price index upon expiry to minimize manipulation risks.
How Delivery Contracts Work
Contract Specifications
- Each contract details the asset (e.g., BTC, ETH), size (e.g., 1 BTC per contract), and expiry.
- Example: A quarterly BTC contract expires on the last Friday of March, June, September, or December.
Trading Mechanics
- Traders take long (buy) or short (sell) positions based on price expectations.
- Margins (e.g., 5–10% of contract value) are required to open positions.
Settlement Process
At expiry, contracts are settled via:
- Physical Delivery: The seller transfers the crypto to the buyer’s wallet.
- Cash Settlement: Rare in crypto; involves cash equivalent instead of the asset.
Advantages of Delivery Contracts
✅ No Funding Fees: Unlike perpetual contracts, delivery contracts avoid recurring funding costs.
✅ Price Stability: Aligns closely with spot markets at expiry, reducing basis risk.
✅ Institutional Appeal: Preferred by miners and hedgers for precise risk management.
Risks to Consider
⚠️ Liquidation Risk: High volatility can trigger margin calls before expiry.
⚠️ Delivery Complexity: Requires secure wallet setups for asset transfers.
⚠️ Limited Flexibility: Less suitable for short-term trading compared to perpetual contracts.
FAQ Section
1. What’s the difference between delivery and perpetual contracts?
Delivery contracts expire and settle physically, while perpetual contracts (e.g., BTC-PERP) have no expiry and use funding fees to tether to spot prices.
2. Who should trade delivery contracts?
Hedgers (e.g., miners locking in prices) and arbitrageurs capitalizing on expiry price convergence.
3. How are delivery contract prices determined?
Prices track the spot market index (e.g., Coinbase BTC/USD) as expiry nears to ensure fair settlement.
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4. Can delivery contracts be rolled over?
Yes! Traders can close expiring positions and reopen new ones to maintain exposure.
5. What happens if I forget to close a delivery contract?
The exchange automatically settles it—either delivering crypto or deducting cash equivalents.
Conclusion
Delivery contracts offer a structured way to trade crypto futures with clear expiry timelines and physical settlement. While they suit long-term hedgers, traders must weigh risks like liquidity and delivery logistics.
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