Why Are Indian Traders Flocking to Crypto Futures Over Spot Deals?

The Indian cryptocurrency market has entered a new phase. Crypto Futures Trading in India has surged far ahead of spot deals across exchanges, marking a shift in how traders interact with digital assets. Once dominated by spot markets where investors directly bought and sold tokens, today’s volumes show that leveraged derivatives are now the preferred choice.

This trend is more than just a shift in strategy. It reflects how taxation, regulation, liquidity, and even global market psychology are shaping trader behavior in India’s evolving digital asset landscape.

The Tax Factor: Escaping the Heavy TDS Net

When India introduced a 1% tax deducted at source (TDS) on crypto transactions in July 2022, the spot market bore the brunt. Every trade invited a direct cut, reducing liquidity and discouraging high-frequency trading. Futures, however, remained outside this direct TDS regime.

Instead, futures traders are taxed on profits, with a lower effective tax burden compared to the punishing levy on spot transactions. This distinction has become one of the main reasons why volumes have tilted so sharply toward derivatives.

• Spot trading faces 1% TDS on each transaction

• Futures traders pay tax only on net profits

• Result: Higher participation in derivatives, shrinking spot liquidity

For active traders, the arithmetic is clear — futures provide breathing space from tax friction, making them an attractive alternative.

The Allure of Leverage

Beyond taxation, leverage is proving irresistible. With futures, traders can amplify exposure with just a fraction of the capital needed for spot deals. Betting big with little money has always been a draw, and in the high-volatility world of crypto, the potential for quick profits makes futures even more compelling.

Of course, the same leverage that magnifies gains also deepens risks. Yet, for many Indian traders — especially younger, risk-hungry participants — the thrill of leverage outweighs the cautionary tales. Spot markets, by comparison, feel slower and less exciting.

Liquidity and Accessibility

Liquidity is another critical factor. While spot markets have thinned after TDS implementation, futures markets have remained active, with deep order books and smoother execution. This has reinforced the shift.

Moreover, many Indian exchanges have optimized their platforms for futures, promoting them with attractive user interfaces, competitive fees, and seamless onboarding. For new entrants, the availability of quick demo trading features has made futures more accessible than navigating the complexities of spot wallets and transfers.

• Deep liquidity pools improve execution

• Lower trading costs relative to spot

• Exchange-led promotion of futures as a core product

As a result, many retail investors now view futures as their first step into crypto — a reversal of the earlier pattern where spot trading was the entry point.

Who Is Driving the Futures Boom?

The profile of India’s futures traders offers insights into why derivatives have overtaken spot. Unlike traditional investors, these participants are more speculative and digitally native. Many are young professionals in Tier-1 and Tier-2 cities, seeking short-term opportunities rather than long-term holding strategies.

Social media channels, Telegram groups, and YouTube trading influencers have also played a key role. Tutorials and signals are often geared toward futures strategies, creating a cycle where education, marketing, and execution all converge to push new traders into derivatives.

Global Influence: Following International Trends

India’s shift is not happening in isolation. Globally, futures dominate crypto trading volumes, with derivatives accounting for nearly 70% of activity on major exchanges. Indian traders are simply aligning with an international trend where futures markets act as the primary engine of liquidity and price discovery.

• Globally, crypto futures make up ~70% of daily trading volumes

• Price discovery increasingly happens in derivatives, not spot markets

• Indian exchanges mirror the global tilt by prioritizing futures offerings

This global influence gives Indian traders a sense of legitimacy in focusing on derivatives, seeing themselves as part of a larger financial ecosystem rather than an isolated domestic niche.

The Hidden Risks of Over-Reliance on Futures

While futures may offer advantages, the risks cannot be overlooked. Excessive leverage can lead to rapid liquidations, and the volatility of crypto often triggers sharp swings that wipe out positions in seconds.

Another concern is that a thin spot market could distort price discovery. If futures dominate but spot liquidity dries up, exchanges risk creating an unstable trading environment. Such conditions can exacerbate volatility and reduce confidence among more conservative participants.

Regulators, too, are watching. The increasing tilt toward futures could push authorities to revisit their stance on derivatives and taxation, especially if retail traders face significant losses.

What Policymakers Need to Consider

The Reserve Bank of India (RBI) and the Ministry of Finance have taken a cautious approach toward crypto, prioritizing oversight and taxation. But the rise of futures raises new policy questions. Should regulators refine tax treatment to balance activity across markets? Or should they tighten rules around leverage to protect retail investors?

Some policy moves that experts suggest include:

• Reducing or restructuring TDS on spot trades to revive liquidity

• Introducing caps on leverage to curb excessive risk-taking

• Allowing regulated derivatives frameworks to ensure transparency

The Road Ahead

India’s futures frenzy is a double-edged sword. On one side, it signals the adaptability of traders and platforms in navigating restrictive taxation and regulatory hurdles. On the other, it highlights the risks of over-concentration in derivatives at the expense of healthier, more diversified spot markets.

For traders, the message is clear: futures may be the hot trend, but they are not a substitute for long-term, sustainable participation in digital assets. For policymakers, the moment demands reform that encourages innovation while safeguarding investor interests.

Ultimately, the future of India’s crypto market will depend on whether stakeholders can strike the right balance between innovation and regulation, risk and reward, spot and futures.

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