Synopsis
Futures products, however, are designed in a way that allows you to go both long and short. In India, the derivatives market—both futures and options—are very well developed.
India’s crypto landscape is undergoing a major shift, with futures trading emerging as the preferred choice for traders. While spot trading faces hurdles like high taxation and liquidity constraints, crypto futures offer advantages such as leverage, lower capital requirements, and better tax efficiency.
In an exclusive conversation on Livestream, Avinash Shekhar, CEO of Pi42, discusses why Indian traders are moving toward futures, how perpetual contracts work, and what’s next for the evolving regulatory landscape.
Edited Excerpts –
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Avinash Shekhar: Most people are aware of futures trading or derivative trading in the traditional stock market, so let’s start there. In a traditional share market, you can buy, for example, a Reliance Industries share on the spot and take delivery, or you can buy a Reliance share on futures.
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This essentially means you are entering into a futures contract, expecting that after one, two, or three months, the price will go up. You can buy or even short futures.
One key difference between the spot market and futures is that shorting is very difficult in the spot market. Technically, you can borrow stocks, especially in international markets, and sell them, but it is quite challenging.
Futures products, however, are designed in a way that allows you to go both long and short. In India, the derivatives market—both futures and options—is very well developed.
Coming to futures in crypto, as an industry, we have introduced an innovation called perpetual futures. In the traditional share market, futures always have an expiry date.
For example, if you take a 28th March futures contract, you must close it by that date, or it will be automatically settled. Similarly, you can trade futures contracts expiring on 31st March, 30th April, etc.
However, in crypto, we have innovated perpetual futures, which means there is no expiry. In theory, you can hold the position indefinitely.
This provides the best of both worlds—like the spot market, there is no expiry, allowing you to keep the position open indefinitely, while also offering the advantage of going both long and short, as with traditional futures.
Kshitij Anand: Although you explained this in your first answer, I’d also like to get your perspective on why crypto futures trading is becoming more popular than spot trading, especially now that we have entered 2025. I’m sure things are changing for the better in the Indian crypto market as well.
Avinash Shekhar: Again, I’ll refer to the stock market first. There are two key reasons why the derivatives market, particularly futures, is growing—especially in crypto.
First, as the market matures, derivatives become more popular. We have seen this trend in the stock market, where futures and options trading have grown significantly—not just in India but worldwide.
This is a sign of market maturity. In crypto, futures trading is also increasing, both in India and globally. As an industry, we see this as a positive sign, as it indicates that professional traders are entering the market.
Second, there is a unique situation in the Indian market. Spot trading in India is heavily taxed—you have to pay 1% TDS on every transaction, along with a flat 30% tax, and you cannot set off losses. When these tax laws were introduced, spot market volumes declined significantly, with many traders shifting to international exchanges, hoping that the Indian government wouldn’t track these transactions. However, this is not the case; the government will eventually be able to track them.
This created a gap in the market—an opportunity for another product to emerge. At Pi42, we saw that futures trading could help address these issues. Since the heavy taxation does not apply to derivatives, Indian customers can participate in the crypto bull run through futures.
For instance, in the last year, Bitcoin’s price has surged from under $30,000 to over $100,000 and is currently around $85,000. Without crypto futures, it would have been very difficult for Indian investors to capitalize on this opportunity.
Of course, there are many features of futures that we will discuss further, but broadly, these are the two main factors: as markets mature, futures trading becomes more relevant, and in India, taxation on spot trading has driven the growth of futures trading.
Kshitij Anand: Now, since we are talking about futures, we also need to talk about leverage because these two are synonymous in the equity market as well. So, how do leverage and low capital requirements make futures trading more attractive than spot trading in this space?
Avinash Shekhar: As I mentioned earlier, one can use leverage in crypto futures, and you can actually use leverage from 1x, which means it is almost like a spot trade—not exactly spot, but almost the same from a capital requirement perspective. You can go up to 75x leverage, meaning you need to keep less capital to enter a trade. However, it is a double-edged sword—you make more money when you profit, but you also lose more money as a percentage of your capital when the trade goes against you.
What we have observed is that people who are more speculative and engage in day trading or technical trading tend to use higher leverage. For example, we offer a scalping feature where, if you close a trade within 15 minutes, your closing fees are zero. In such cases, traders use higher leverage because they know they will close the trade within 15 minutes, half an hour, or at least within the same day.
The second category of traders takes a mid- to long-term approach, holding positions from a week to three or four months. Some of our customers have kept their trades open for eight to ten months as well. In such cases, they generally opt for lower leverage, typically between 3x and 5-6x, instead of the maximum 75x. The product and market offer traders the flexibility to choose their leverage level based on their risk appetite.
Kshitij Anand: One of the next topics I want to discuss is regulations. It’s good that you touched upon them briefly in our conversation. What are the major regulatory challenges affecting spot crypto trading in India? We talked about the 30% tax and the 1% TDS on spot trades, which are impacting the market and leading to growth in the futures segment. Yes, the regulatory landscape is volatile and dynamic at this point, and there could be further changes in the near future—we cannot ignore that. But at this moment, what do you see as the biggest regulatory challenges in this space?
Avinash Shekhar: In the short term, as an industry, we believe that progress should be happening faster than it currently is. Internationally, markets like the U.S. are taking significant steps to support Web3 and crypto. They have announced measures to enable the crypto ecosystem to grow. In India, there has been progress over the last few years, but now is the time to accelerate and implement full-fledged regulations. I am not sure how long it will take, but as of now, it seems it will take a bit longer.
That being said, if we look at the past three to five years, there have been significant positive developments. For example, the Supreme Court ruled that the banking ban on crypto was not valid. The government’s stance has also evolved—from initially considering an outright ban to now taking a regulatory approach, with public statements confirming that they want to regulate rather than prohibit crypto.
Another significant development was the clarification on income tax. Although the tax rate is quite high, the fact that there was an official clarification was a step in the right direction from a regulatory standpoint. Additionally, the Financial Intelligence Unit (FIU) included crypto exchanges under the Prevention of Money Laundering Act (PMLA), making them reporting entities. This was another major step forward.
So, while I believe things should move faster, overall, we are heading in the right direction from an industry perspective.
Kshitij Anand: Are there any advantages beyond tax efficiency, which we discussed earlier in our conversation? Leverage could be another advantage that traders can use at this point. Would you like to highlight more positive aspects of futures trading?
Avinash Shekhar: The way we have designed our product makes a significant difference. If you want to trade in spot markets, especially crypto-to-crypto, or trade on an international exchange, you need to buy stablecoins or other cryptocurrencies. This requires transferring money from your bank account to purchase crypto and then withdrawing those funds. However, this process has become increasingly difficult due to security concerns, regulatory restrictions, and compliance issues.
Most crypto exchanges are tightening compliance requirements, making it harder to withdraw crypto. So, taxation is one aspect, but another issue is that since you cannot easily withdraw crypto, your ability to trade becomes more limited. You cannot just go to an international exchange and start trading. Some traders use unofficial methods like peer-to-peer (P2P) transactions, which, in my view, are very risky and not worth it.
Given these challenges, we explored alternative ways for traders to participate in the crypto market. We introduced crypto derivatives or futures that are:
Denominated in INR: In the spot market, BTC-INR means you purchase BTC in INR terms. However, in global futures markets, there is no BTC-INR pair—only BTC-USDT or BTC-USDC. Trading BTC-USDT requires first buying USDT, which is difficult due to withdrawal restrictions. So, we introduced BTC-INR perpetual futures, allowing customers to transfer INR from their bank account and trade long or short positions seamlessly. We now offer over 260 crypto-INR pairs.
Margined in INR: Some traders prefer analyzing BTC-USDT charts and indicators. To accommodate them, we introduced BTC-USDT perpetual futures, but with INR margining. This means traders can deposit INR as margin and trade BTC-USDT futures, with everything settled in INR. This approach has gained significant popularity.
We were the first exchange in India to introduce INR-denominated and INR-margined crypto futures. To my knowledge, we remain the only player currently offering BTC-INR-denominated crypto futures.
Kshitij Anand: I’ll quickly take a question from our chat, as it relates to indicators. When trading futures, should traders focus on volume, or are there specific moving averages to consider for going long or short?
Avinash Shekhar: I may not be able to specify exact indicators, as many are available. However, I’d like to highlight that technical indicators tend to work much better in crypto markets than in the stock market. The stock market has a much longer history and a large number of professional traders using similar technical indicators. When many traders rely on the same indicator, market efficiency makes it harder to gain an edge.
The crypto market, while maturing rapidly, is still not as developed as the stock market. This means technical indicators can be more effective. For example, scalping is a popular strategy among our customers. Since we offer zero fees for trades closed within 15 minutes, traders aggressively use scalping strategies.
Many scalpers use moving averages, such as the 10-period and 25-period moving averages. If the price moves above a certain moving average, they go long; if it moves below, they go short. In fact, some traders automate these strategies using Is.
Kshitij Anand: So, they are using bots to trade?
Avinash Shekhar: Yes, they are using bots to execute these strategies.
Kshitij Anand: Now, it’s good that we discussed a few things here. We have talked a bit about bots, technical indicators, and regulatory concerns. So, the next major question that most traders or investors probably have is: What are the risks associated with crypto futures trading, and how can traders manage them?
Avinash Shekhar: One risk, obviously, is that whenever you trade derivatives or use leverage, your profits and losses become magnified. You can make more money, but you can also lose more money. This means that money management becomes extremely important. You should avoid over-leveraging.
For example, one strategy might be to allocate Rs 100 of investable capital. You could use 5-10% with high leverage while using 70-80% with low leverage. You might allocate 10-20% of your capital for day trading or scalping at higher leverage, while the rest is used for a lower leverage strategy, say 3x to 5x, if you believe BTC will continue to rise.
As I mentioned, leverage is a double-edged sword, so customers must be very careful. That, I believe, is the key takeaway.
Kshitij Anand: Let’s take a 360-degree view. What kind of participation are you seeing from retail investors versus institutions? How has this trend evolved over the past few years?
Avinash Shekhar: The crypto market itself is a retail-driven market. It is one of the few markets in financial history where retail investors entered first, and institutions are only now beginning to participate.
When we look at our trader categories, we primarily see retail traders. Then, we have professional retail traders—those who use charts, bots, and technical analysis. Finally, there are institutions. However, institutional participation in India remains very low, or almost nonexistent. This is largely because institutions are waiting for regulatory clarity before diversifying into crypto.
Internationally, institutional participation is growing rapidly. Unfortunately, this is one area where India is lagging behind. While global institutional investment in crypto is increasing, India’s market is still dominated by retail and professional traders.
Kshitij Anand: Now, let’s talk a bit about the future. Since we’re discussing futures, we can’t leave out options. Is there a plan to introduce options for better strategy formulation?
Avinash Shekhar: Yes, we have already started working on crypto options, and it may take approximately three to four months to launch.
As with our futures product, we will continue our strategy of using INR as the margin. This means you will be able to buy or sell BTC-USDT options while providing the margin in INR.
With this, we expect participation to increase. As you mentioned, options are widely used not only for trading but also for hedging. While buying options can be speculative, it also requires less capital, and your loss is capped at a certain level.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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