The fourth lesson on arbitrage. How spot differs from futures and perpetuals, why one bitcoin on one exchange has three prices at once, what shorting and leverage are, and where liquidation comes from.

LESSON 4 · NOTES

Spot, futures, perp: three instruments on one asset

One bitcoin, one exchange, one second — and three different prices. Let’s look at why that happens and what it gives you.

Three takeaways

These are three different instruments. Spot is the asset itself. Futures and perps are obligations to buy or sell it. Owning an obligation and owning the asset are not the same thing.
Each has its own order book. That’s why one bitcoin on one exchange has three prices at once. It’s not a bug, and it’s not three different pairs.
A contract gives you shorting and leverage. Both widen your opportunities — and both raise the risk of losing your entire deposit.

1. Spot

You buy the asset itself: you pay dollars and get bitcoin on your exchange balance. It’s yours: you can hold it as long as you like, or withdraw it to a wallet or another exchange. There’s one limitation, and it’s a big one: you only make money if the price goes up. To sell something, you have to buy it first. Some exchanges offer margin spot, where you can borrow a coin and sell it — but that’s a loan, and it doesn’t change the basic picture.

2. Dated futures

A futures contract is not an asset but an obligation to buy or sell at an agreed price on an agreed date. The obligation binds both sides: neither the buyer nor the seller can walk away. The bitcoin itself doesn’t belong to you. The settlement date is called expiration. An everyday analogy: in spring a farmer agrees to sell the harvest in autumn at a fixed price — the crop doesn’t exist yet, but the obligation already does. And that obligation itself can be traded without waiting for autumn. Don’t confuse this with an option: an option gives the buyer the right to buy or sell, but not the obligation.

3. Perpetual futures

Exchanges label them Perpetual; traders just say “perp”. It’s the same obligation as a dated futures contract, only with no end date. This instrument doesn’t exist on stock or forex markets — crypto exchanges invented it. Most crypto trading volume happens here, not on spot. Which raises a fair question: if there’s never a settlement, what keeps the perpetual’s price close to spot? That’s what the funding mechanism is for: every few hours one side pays the other, which pulls the prices back together. It’s a big topic of its own.

4. What a contract gives you

Shorting. You take on an obligation to sell bitcoin at a fixed price, say 80,000; the other side commits to buy at that same price. The price drops to 75,000 — you sold above the market and you’re up 5,000. The price rises to 85,000 — you’re obliged to sell below the market and you’re down 5,000. You can’t do this on pure spot.
Leverage. Your position can be larger than your deposit. $1,000 in the account with 10× leverage gives you a $10,000 position.

The flip side of leverage is liquidation. If the market moves against you far enough to eat through your collateral, the exchange force-closes the position so it doesn’t end up in the red itself. At 10× leverage, a move of roughly 10% is enough.

Leverage doesn’t only amplify profit. It amplifies profit and loss equally.

5. Why there are three prices

Spot, perp and futures trade independently: each has its own order book, its own buyers and its own sellers. Just as the different exchanges from the first lesson aren’t connected to each other — only here it happens inside a single venue. And since the prices differ, a gap opens up between them. That gap can be captured too, and you don’t need to transfer anything anywhere: all three instruments sit on the same exchange.

Terms

Spot — Trading the asset itself. You buy it, it’s on your balance, no expiry.
Futures — An obligation to buy or sell an asset at a set price on a set date. Binding on both sides.
Perp — Perpetual futures — the same obligation, but with no expiration date.
Option — A right, not an obligation, to buy or sell at a set price. Not covered in this series.
Expiration — The date when a dated contract closes and the parties settle.
Long and short — A bet on the price rising and a bet on it falling, respectively.
Leverage — The ability to hold a position larger than your own deposit.
Liquidation — The exchange force-closing a position when the collateral is no longer enough.
Funding — Periodic payments between the two sides of a perp that keep its price near spot.

Test yourself

What does someone who bought a bitcoin futures contract actually own?
An obligation, not bitcoin. The asset doesn’t belong to them — what they have is a duty to settle at the agreed price on the agreed date.

Why does one bitcoin have three prices on one exchange?
Because spot, perp and futures trade in three independent order books. The price in each is set only by its own participants.

With 10× leverage, what move against your position wipes out your deposit?
Roughly 10%. The position is ten times your deposit, so a 10% loss on the position equals the whole deposit. In practice liquidation comes a little earlier because of fees and maintenance margin.

Next lesson: networks and transfers — why one coin travels across different networks, what ERC-20 and TRC-20 are, and how people lose money by sending a coin to the wrong place. Trade breakdowns and what’s happening in the market — on our Telegram channel @arbiq_ai · t.me/arbiq_ai

This material is for educational purposes only and is not investment advice. Any trading decisions are yours alone and made at your own risk.

A4Lesson 4. Spot, futures, perp: three instruments on one asset