Crypto Trading Advanced Topics 2 — Questions and Answers
Question 1: In a perpetual futures contract, what mechanism keeps the contract price anchored to the spot price?
- Funding rate payments (Correct answer)
- Daily expiry settlement
- Mandatory stop-losses
- Exchange-set price caps
Correct answer: Funding rate payments
Perpetuals have no expiry, so periodic funding payments between longs and shorts pull the contract price toward spot.
Question 2: A trader opens a 10x leveraged long. If the asset falls 10%, what roughly happens to their position?
- It is liquidated near total margin loss (Correct answer)
- It gains 10%
- It is unaffected
- It auto-converts to spot
Correct answer: It is liquidated near total margin loss
At 10x leverage a 10% adverse move wipes out the initial margin, triggering liquidation.
Question 3: What does 'basis' refer to in crypto futures trading?
- The difference between futures and spot price (Correct answer)
- The exchange listing fee
- The minimum order size
- The wallet seed phrase
Correct answer: The difference between futures and spot price
Basis is the spread between the futures contract price and the underlying spot price.
Question 4: When the funding rate is strongly positive on a perpetual, what does it indicate?
- Longs are paying shorts, signaling bullish crowding (Correct answer)
- Shorts are paying longs
- The contract is about to expire
- Trading is halted
Correct answer: Longs are paying shorts, signaling bullish crowding
Positive funding means long holders pay shorts, typically reflecting an overcrowded bullish market.
Question 5: What is 'contango' in a crypto futures curve?
- Futures priced higher than spot (Correct answer)
- Futures priced lower than spot
- Spot equals futures exactly
- A type of stablecoin
Correct answer: Futures priced higher than spot
Contango describes a market where futures contracts trade above the current spot price.
Question 6: An isolated margin position differs from cross margin because isolated margin:
- Limits risk to the margin allocated to that single position (Correct answer)
- Shares all account balance as collateral
- Cannot be liquidated
- Requires no collateral
Correct answer: Limits risk to the margin allocated to that single position
Isolated margin caps potential loss to the funds assigned to that one position, protecting the rest of the account.
Question 7: What is the primary purpose of an exchange's insurance fund in derivatives trading?
- Cover losses when liquidations exceed a trader's margin (Correct answer)
- Pay staking rewards
- Fund marketing campaigns
- Subsidize gas fees
Correct answer: Cover losses when liquidations exceed a trader's margin
The insurance fund absorbs bankruptcy losses so winning traders are paid even when a liquidated account goes negative.
Crypto Trading Advanced Topics 2
In a perpetual futures contract, what mechanism keeps the contract price anchored to the spot price?