BA-13 · LESSON 01

Spot, forwards, and futures

KEY DEFINITIONS

Terms used in this lesson

Collateral: An asset pledged against a debt; it can be used to cover the debt if agreed conditions are breached.
BTC: The common market ticker for bitcoin.

Market instruments differ in settlement, leverage, margin, counterparty exposure, and relationship to spot bitcoin.

35 min Difficulty 3/5 Not started

VISUAL MODEL

See the whole mechanism before going step by step

Use the diagrams to orient yourself. Then the guided explanation below teaches every part in depth.

4 explanatory views

CONCEPT-SPECIFIC MAP · basis ledgerBasis is a price difference, not a guaranteed returnSelect any state to inspect its exact role.

RELATIONSHIP MAPCompeting paths and resolution

01
SPOTBTC = $100,000
The cash leg is bought or held at the current spot price.
02
FUTURE$102,000
A future below spot is backwardation; above spot is contango.
03
RAW BASIS+2.0%
Raw basis equals futures minus spot, divided by spot.
04
COSTSFunding, fees, and margin
Net return must deduct every cash flow and capital constraint on both legs.
05
BOUNDARYConvergence can capture spread
Liquidation, exchange failure, and execution slippage can dominate the quoted spread.

Rule shown: Annualized basis depends on spot, futures price, time to expiry, financing, fees, margin, and whether both legs can be closed.

STAGE 1 OF 5SPOT: BTC = $100,000

The cash leg is bought or held at the current spot price.

Governing relationship: Annualized basis depends on spot, futures price, time to expiry, financing, fees, margin, and whether both legs can be closed. Complete path: 1. SPOT, BTC = $100,000. The cash leg is bought or held at the current spot price. 2. FUTURE, $102,000. A future below spot is backwardation; above spot is contango. 3. RAW BASIS, +2.0%. Raw basis equals futures minus spot, divided by spot. 4. COSTS, Funding, fees, and margin. Net return must deduct every cash flow and capital constraint on both legs. 5. BOUNDARY, Convergence can capture spread. Liquidation, exchange failure, and execution slippage can dominate the quoted spread.

1. State transitionWhat exists, what changes, and what results

BEFORE

Bitcoin rises from $100,000 to $105,000. Compare 1 BTC spot, a bilateral forward, a margined future, and a perpetual with $20,000 initial margin.

MECHANISM

Notional is the exposure amount. Identify physical bitcoin delivery, cash settlement, venue rules, maturity, and the party holding collateral.

AFTER

Equal notional does not imply equal successor state: settlement, funding, fees, default, and liquidation are separate enforced transitions.

Text equivalent: Starting from Bitcoin rises from $100,000 to $105,000. Compare 1 BTC spot, a bilateral forward, a margined future, and a perpetual with $20,000 initial margin. The mechanism begins when Notional is the exposure amount. Identify physical bitcoin delivery, cash settlement, venue rules, maturity, and the party holding collateral. The resulting lesson is Equal notional does not imply equal successor state: settlement, funding, fees, default, and liquidation are separate enforced transitions.

2. Mechanism pathSelect a stage to inspect its job

STAGE 1 OF 5

Define notional and settlement

Notional is the exposure amount. Identify physical bitcoin delivery, cash settlement, venue rules, maturity, and the party holding collateral.

Complete path: 1. Define notional and settlement: Notional is the exposure amount. Identify physical bitcoin delivery, cash settlement, venue rules, maturity, and the party holding collateral. 2. Mark positions through time: Futures venues credit and debit margin as market price changes. A profitable final view can still be liquidated after an adverse interim move. 3. Compare forward counterparty risk: A bilateral forward depends on each party performing at maturity unless collateral and closeout arrangements reduce exposure. 4. Track futures basis and funding: Futures price can differ from spot because of financing, demand, time, and risk. Perpetual swaps use recurring funding rather than a fixed expiry convergence. 5. Reconcile net outcome: Calculate price P&L, funding, fees, margin interest, custody, taxes, and settlement differences in one unit.

3. Rule and failure boundaryWhat accepts the result and where it can stop

ACCEPTED PATH

Each instrument applies its own settlement, margin, funding, fee, custody, and counterparty rules to the same dated price path before its successor state is accepted.

CHANGED CONDITION

An interim maintenance breach terminates the margined position, a forward default leaves a receivable unpaid, and a later price recovery cannot silently reopen either state.

Important distinction: A futures position is equivalent to holding the same amount of bitcoin in self-custody. Futures add margin, venue, settlement, funding, liquidation, and counterparty structures and may never deliver bitcoin.

Text equivalent: The accepted path is enforced by Each instrument applies its own settlement, margin, funding, fee, custody, and counterparty rules to the same dated price path before its successor state is accepted. If the required condition changes, An interim maintenance breach terminates the margined position, a forward default leaves a receivable unpaid, and a later price recovery cannot silently reopen either state.

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Learn the idea

Spot trading exchanges bitcoin for immediate or near-immediate settlement. A forward is a bilateral agreement today for future exchange at a fixed price. A futures contract is standardized and traded through a venue with margin and settlement rules. Leverage uses collateral smaller than the notional exposure, creating liquidation and funding risk.

GUIDED EXPLANATION1/5 ideas inspected

Define notional and settlement

Notional is the exposure amount. Identify physical bitcoin delivery, cash settlement, venue rules, maturity, and the party holding collateral.

The worked example follows the explanation

Inspect every idea above to open it.

Important distinction“A futures position is equivalent to holding the same amount of bitcoin in self-custody.”

Futures add margin, venue, settlement, funding, liquidation, and counterparty structures and may never deliver bitcoin.

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