⚔️Spot vs Futures: Trading Modes and Leverage Configuration

This article was produced by the Quantitative Trading Lab at https://www.itrade.icu. Visit for more benefits. When using Freqtrade, the choice of trading mode directly affects your strategy logic, risk management, and order behavior. You can choose spot trading or futures trading with leverage. Different modes require different configuration parameters, such as margin_mode, leverage, and liquidation_buffer.

This guide explains the purpose, use cases, and practical considerations for these settings to help you build a sound risk management system.

---

💱 trading_mode — Trading Mode

"trading_mode": "spot"

• Determines whether Freqtrade operates on the spot or futures market.

• Options:

  • "spot": Spot mode; buy and hold, cannot short.

  • "futures": Futures mode; supports leverage, long and short positions, more flexibility but higher risk.

🟢 Spot Mode Features

• Only supports buying low and selling high; suitable for bullish markets.

• Simple trading logic; no leverage management needed.

• Recommended for beginners or stable strategies.

🔴 Futures Mode Features

• Supports long and short positions; suitable for sideways or bearish markets.

• Leverage amplifies gains and losses.

• Requires additional risk management: position sizing, liquidation buffers, isolated/cross margin, etc.

✅ Practical Tip:

• Beginners should start with "spot".

• Once familiar, switch to "futures" and enable risk management parameters.

---

🧮 margin_mode — Futures Margin Type

margin_mode only applies when trading_mode: "futures". It has no effect in spot mode and will be ignored there. It sets the margin type per position.

"trading_mode": "futures",
"margin_mode": "isolated"

Options:

Value	Meaning	Notes
"isolated"	Isolated Margin	Each position’s risk is independent; liquidation in one position does not affect others. Recommended for beginners.
"cross"	Cross Margin	All positions share account balance; mismanagement may liquidate the entire account.

✅ Recommended:

• Use "isolated" for safer position management.

---

💥 leverage — Leverage Setting

Freqtrade supports dynamic leverage in strategies, and you can set different leverage for different pairs.

📌 Example Strategy:

def leverage(self, pair: str, current_time: datetime, current_rate: float,
             current_profit: float, current_cost: float, **kwargs) -> float:
    return 3.0  # 3x leverage

⚠️ Notes

• Leverage is only applicable in "futures" mode.

• Must return a float.

• If leverage() is not implemented, Freqtrade will use the exchange account’s default settings.

• Some exchanges limit maximum leverage (e.g., Binance 20–125x).

✅ Practical Tip:

• Start with 2–5x leverage.

• Leverage amplifies both gains and losses, so combine with stop-loss and buffer mechanisms.

---

🛡️ liquidation_buffer — Liquidation Buffer

"liquidation_buffer": 0.05

• Only for "futures" mode.

• Reduces usable balance to avoid full exposure, lowering liquidation risk.

• 5% buffer means 5% of account balance is reserved.

📌 Example:

Total Account Balance	liquidation_buffer	Max Usable Balance
1000 USDT	0.05 (5%)	950 USDT
1000 USDT	0.2 (20%)	800 USDT

✅ Recommended:

• Beginners: 0.05–0.1

• High-leverage strategies: 0.2

---

✅ Recommended Configuration

"trading_mode": "futures",
"margin_mode": "isolated",
"liquidation_buffer": 0.05

📌 Pair with strategy leverage:

def leverage(self, pair, current_time, current_rate, current_profit, current_cost, **kwargs):
    return 3.0  # 3x leverage

---

📊 Mode Comparison

Setting	Spot Mode	Futures Mode
Shorting Supported	❌ No	✅ Yes
Leverage Supported	❌ No	✅ Yes
Risk Management Requirements	Low	High (stop-loss, position control)
Recommended Margin Type	-	"isolated"
Leverage Logic Required	❌ No	✅ Recommended dynamic
Supports liquidation_buffer	❌ No	✅ Strongly recommended

---

🔐 Live Trading Risk Management Recommendations

Control	Suggested Practice
margin_mode	"isolated" to prevent one liquidation affecting entire account
leverage	Start with 2–3x; increase after backtesting
liquidation_buffer	0.05–0.2 to reduce full exposure risk
Stop-loss Configuration	Use stoploss or custom_stoploss
Position Limits	Use max_open_trades to control open positions

---

🧠 Summary

Parameter	Description	Recommended Range
trading_mode	Trading mode (spot/futures)	"spot" or "futures"
margin_mode	Margin type (futures only)	"isolated"
liquidation_buffer	Reserved account balance for futures	0.05–0.2
leverage()	Dynamic leverage in strategy	2.0–5.0