How the market works: spot, futures, leverage

The crypto market has two big worlds. On spot you buy the coin itself: you pay dollars (more precisely, dollar tokens such as USDT) and get bitcoin in your account. It is yours: you can hold it as long as you like, move it to a wallet, sell it tomorrow or in a year. You make a profit only if the price rises: bought at 80,000, sold at 84,000 — that is 5%.

On futures you buy not the coin but a contract whose price is tied to the coin's price. No bitcoin changes hands: the exchange simply credits or debits the price difference between your entry and your exit. That is why on futures it is equally easy to profit from a rise and from a fall: you can buy the contract first, or you can sell it first.

The main type of crypto future is the perpetual (a “perp”). An ordinary future has an expiry date on which the contract closes. A perpetual has none: you can hold the position as long as you like. To keep its price from drifting far from spot, every few hours one side pays the other a small amount — this is funding, the subject of section 11. For now it is enough to know that a perpetual trades very close to spot, but not exactly at it.

Long and short. Buying a contract expecting a rise is called opening a long position. Selling a contract you did not have, expecting a fall, is opening a short. A short is closed by buying back: sold at 80,000, bought back at 78,000 — the 2,000 difference per bitcoin is yours. On ordinary spot this does not work: you can only sell a coin you actually hold.

The result of a position in dollars is calculated just as simply: quantity × (exit price − entry price) for a long and quantity × (entry price − exit price) for a short. A long of 0.1 BTC from 80,000 to 81,200: 0.1 × 1,200 = +$120. A short of the same 0.1 BTC over the same move: 0.1 × (80,000 − 81,200) = −$120. Long and short are mirror images: one side's profit is the other side's equal loss.

It is convenient to measure a position in dollars too: 0.1 BTC at 80,000 is an $8,000 position. The result is then just the price move applied to that amount: price moved +1.5% — the $8,000 position made 1.5% of $8,000 = $120. It is the same number reached another way.

To open a futures position you do not pay its full value. The exchange takes part of it as collateral — the margin, your own money that stands behind a possible loss. Leverage is how many times the position is larger than the margin: leverage = position / margin. With ×10 leverage, $1,000 of margin opens a $10,000 position; with ×2, the same $10,000 position needs $5,000 of margin.

The key thing to grasp on day one: dollars of profit and loss depend on the position, not on leverage. A $10,000 position makes $100 on a +1% move — whether at ×2 or at ×10. Leverage changes something else: what share of your money those $100 are. With $5,000 margin (×2) that is 2%; with $1,000 margin (×10) it is already 10%.

Hence two formulas worth keeping in your head:

• result in $ = position in $ × price move in %;
• result in % of margin = price move in % × leverage.

Margin $2,000, ×5 leverage, long. The position is $2,000 × 5 = $10,000. Price rose 3%: the result is $300, which is 3% × 5 = 15% of margin. Price fell 3%: −$300 and −15% of margin. Leverage multiplies the price move in both directions equally.

The second formula immediately gives the most important number of any leveraged position: how many percent the price has to move against you for the margin to be gone entirely. That is 100% / leverage: at ×5 — 20%, at ×10 — 10%, at ×20 — 5%, at ×50 — 2%, at ×100 — 1%. In practice the exchange closes the position earlier, without waiting for zero — that is liquidation, the subject of section 12. On top of that, the exchange charges for every trade (section 2), and that also eats into the buffer.

Loss and recovery are not symmetric. Lose 20% of margin and $1,000 becomes $800. To get back to $1,000 you need to make $200, which is 25% of $800, not 20%. Lose 50% — you need +100%. Lose 80% — you need +400%. The formula: required gain = loss / (1 − loss). With leverage such losses can happen within minutes, so it pays to do this arithmetic beforehand, not afterwards.

Isolated and cross margin. Exchanges usually offer two modes. In isolated mode only the margin assigned to the position stands behind it. In cross mode the whole free balance of the account does, and a bad position can take more than you mentally “assigned” to it. Which mode is on is worth checking before entering, not after.

An exchange is a place where orders meet. In the simplest form there are two kinds.

• A limit order: “buy 1 BTC at no more than 80,000” or “sell 1 BTC at no less than 80,100”. If nobody accepts these terms right now, the order joins the queue and waits. It may never be filled.
• A market order: “buy 1 BTC right now at the best price available”. It is filled immediately — against resting limit orders on the opposite side. It does not choose the price; it accepts the one on offer.

Order types in detail, filling across several prices and trading charges are covered in section 2, and the full queue of orders by price (the order book) in section 3.

Hence two roles in every trade. The one whose limit order was resting and waiting is the maker: they “make” the market by posting a ready price. The one who arrived and accepted that price is the taker: they “take” what is ready. Every trade is exactly one pair: one maker and one taker, for one and the same amount.

The taker is also called the aggressor: they are the one in a hurry, paying for speed by accepting someone else's price. When the terminal says “market buy” or “aggressive buy”, it means the taker in the trade was the buyer, who came to a resting limit sell. A “market sell” is the opposite: a selling taker came to a resting limit buy. Exchanges and EVA define the side of a trade by the aggressor.

A maker is not necessarily a seller, and a taker is not necessarily a buyer. A limit buy filled by someone's market sell means a buying maker and a selling taker.

Why price moves only through trades. The “price” on a chart is the price of the last trade. While everyone is merely placing and pulling limit orders there are no trades — and the last price stays put no matter how many orders appear. Even a huge limit buy below the current price moves nothing: it is an intention, not a trade, and it can be removed at any second.

This is how price rises. Limit sells rest at 100.0, 100.1, 100.2… Market buys arrive and take everything resting at 100.0. Nobody is left selling at 100.0 — the next market buy is filled against the sell at 100.1, and the last price becomes 100.1. A fall is the mirror image: market sells take all limit buys at the current price, and the next trade happens lower.

So for price to move up, aggressive buys have to take all the supply at current prices faster than sellers replenish it. The fewer limit orders rest near the price, the less money it takes to move it. That is liquidity — covered in detail in section 3.

Where you see this in EVA. Large trades on the chart are dots whose colour shows the aggressor's side: a market buy or a market sell. The “Taker Aggression” pane below the chart shows how much was bought at market for every unit sold at market (it uses Binance's ready-made figure for its perpetuals). Above one means buyers were in a hurry more often, below one — sellers. It is a story about past trades, not a forecast: every number on screen has a “?” sign, and the help says what the number does not show.