Clear, concise definitions for every term you'll encounter trading futures and options. From delta to backwardation.
The lowest price a seller is willing to accept for an asset. When you place a market buy order, you pay the ask price.
An option whose strike price is equal to (or very close to) the current market price of the underlying asset. ATM options have the highest time value.
A market condition where futures prices are lower than the spot (current) price. This occurs when demand for immediate delivery exceeds future delivery demand. Shorts pay longs in funding during backwardation.
The difference between the spot price and the futures price of the same asset. Basis = Futures Price − Spot Price. A positive basis (contango) means futures trade at a premium; negative (backwardation) means a discount.
The highest price a buyer is willing to pay for an asset. When you place a market sell order, you receive the bid price. The difference between bid and ask is the spread.
A derivatives contract giving the buyer the right, but not the obligation, to purchase the underlying asset at a specified strike price on or before the expiration date. Call buyers profit when the underlying price rises above the strike.
A market structure where futures prices are higher than the current spot price. In contango, long futures traders pay a premium over spot, typically reflecting carry costs and positive market expectations.
A margin mode where your entire available account balance is used as collateral for all open positions. This reduces liquidation risk versus isolated margin but means a losing trade can draw on capital allocated elsewhere.
The first-order Greek measuring how much an option's price changes for a $1 move in the underlying asset. Ranges from 0 to +1.0 for calls and -1.0 to 0 for puts. Also approximates the probability the option expires ITM.
Financial contracts whose value is derived from an underlying asset (such as Bitcoin or Ethereum). Crypto derivatives include futures, perpetual swaps, options, and other structured products. They enable speculation, hedging, and leverage without holding the underlying asset.
The date on which an options contract or dated futures contract expires and becomes void. Options must be exercised or sold before expiration. Most crypto options expire at 8:00 UTC on the expiration date.
A periodic cash flow mechanism used in perpetual futures to anchor the contract's price to the spot price. When funding is positive, long positions pay short positions. When negative, shorts pay longs. Typically charged every 8 hours.
A standardized agreement to buy or sell an underlying asset at a predetermined price on a specific future date. Crypto futures allow traders to speculate on price movements or hedge existing positions with leverage, without owning the underlying asset.
The second-order Greek measuring the rate of change of delta relative to a $1 move in the underlying. High gamma options (ATM, near expiry) have delta that changes rapidly, creating explosive P&L potential — and risk.
A set of risk measures for options contracts: Delta (directional exposure), Gamma (rate of delta change), Theta (time decay), Vega (volatility sensitivity), and Rho (interest rate sensitivity). Collectively used to manage options portfolio risk.
A risk management strategy that involves taking an offsetting position in a related asset or derivative to reduce the risk of adverse price movements. Example: holding BTC long while shorting BTC futures to reduce downside exposure.
The market's forecast of likely price movement expressed as an annualized percentage, derived from an option's current market price. High IV = expensive options (good for selling); Low IV = cheap options (good for buying).
An option that has intrinsic value. For calls: the underlying price is above the strike price. For puts: the underlying price is below the strike price. ITM options are more expensive but have higher delta.
A margin mode where only the specifically deposited margin for a position can be lost if liquidated. Your other account funds are protected. This limits catastrophic loss but raises the liquidation price compared to cross margin.
The use of borrowed capital to increase the potential return of an investment. At 10x leverage, $1,000 controls a $10,000 position. A 10% adverse price move results in 100% loss of margin. Higher leverage = smaller move to liquidation.
The forced closure of a leveraged position by the exchange when the trader's margin balance falls below the maintenance margin requirement. The liquidation price depends on leverage ratio, position size, and margin mode used.
The degree to which an asset or market can be bought or sold quickly without significantly affecting its price. High liquidity = tight spreads, deep order books, and easy execution. Low liquidity = slippage and price impact.
A position that profits when the underlying asset's price increases. Going long means you've bought an asset or derivatives contract expecting price appreciation.
A trader who places a limit order that adds liquidity to the order book and isn't immediately matched. Makers receive lower (or zero) fees as a reward for providing liquidity. Opposite of taker.
Collateral deposited to open and maintain a leveraged position. Initial margin is required to open; maintenance margin is the minimum to keep it open. If your balance falls below maintenance margin, liquidation is triggered.
A calculated reference price used to determine liquidations and unrealized PnL, based on a combination of the spot index price and a moving funding rate component. Uses aggregated spot prices from multiple exchanges to prevent manipulation.
The total number of outstanding derivative contracts (futures or options) that haven't been settled. Rising OI with rising price = bullish; Rising OI with falling price = bearish. A useful indicator of market conviction.
A contract giving the buyer the right (but not obligation) to buy (call) or sell (put) an underlying asset at a specified price before a specified date. The buyer pays a premium to the seller for this right.
An option with no intrinsic value. OTM calls have strike above spot price; OTM puts have strike below spot. OTM options are cheaper and have lower delta but a lower probability of expiring profitably.
A futures-like contract with no expiry date. Perpetuals track the underlying spot price via a periodic funding rate mechanism. They are the most traded crypto derivatives instrument, with trillions in annual volume.
The price paid by the option buyer to the seller for the rights the contract confers. Premium consists of intrinsic value (if ITM) plus time value. Higher volatility and longer time to expiry increase the premium.
A derivatives contract giving the buyer the right, but not the obligation, to sell the underlying asset at the strike price on or before expiration. Put buyers profit when the underlying price falls below the strike minus premium paid.
A position that profits when the underlying asset price decreases. In crypto, shorting futures or perpetuals allows traders to benefit from price declines without owning the underlying asset.
The difference between the expected price of a trade and the actual executed price, caused by insufficient liquidity or fast price movement. Larger orders in illiquid markets cause more slippage.
The difference between the highest bid price and lowest ask price in an order book. Narrow spread indicates high liquidity; wide spread indicates low liquidity. Takers pay half the spread on each trade.
The predetermined price at which the holder of an options contract can buy (call) or sell (put) the underlying asset. The relationship between current price and strike determines moneyness (ITM/ATM/OTM).
A trader who places an order that immediately matches with an existing order in the order book, removing liquidity. Takers pay higher fees than makers as they consume liquidity rather than provide it.
The Greek measuring the daily rate at which an option's value declines due to the passage of time, all else equal. Theta is always negative for option buyers and positive for sellers. Accelerates as expiration approaches.
The portion of an option's premium that exceeds its intrinsic value, reflecting the probability that the option could gain additional value before expiration. Time value decays to zero at expiry, per theta.
The gain or loss on an open position that has not yet been closed. Calculated based on mark price vs entry price. Unrealized PnL can be used as additional margin in cross margin mode.
The Greek measuring an option's sensitivity to changes in implied volatility. A positive vega means the option gains value when IV increases. Long options (both calls and puts) are vega positive; short options are vega negative.
A statistical measure of the dispersion of returns for an asset. Historical volatility measures actual past price movements. Implied volatility is forward-looking, derived from options prices. Crypto has historically high volatility compared to traditional assets.
Turn these definitions into real trading skills with our free course library.