Home Finance What is Futures Trading in Crypto?

What is Futures Trading in Crypto?

trading in crypto

To make more money in the cryptocurrency business, you need to understand the basics of trading the future price of cryptocurrencies. It makes trading with crypto very convenient. It allows traders to bet on a digital currency’s future price without owning that digital currency. Bitcoin futures are the most popular kind of futures you can trade in crypto. They allow investors and traders to speculate on the future price of bitcoin. You can get to know more about the best sites that allow you to take a  bitcoin loan for trading and investment.

Pros of Bitcoin Futures

  • They allow an investor to get ahead of a positive market price. If the investor is correct, he may have access to major profit.
  • You do not have to hold any bitcoin to make this possible. It is all about trading bitcoin at a future date and at a future price.
  • You do not need technology to be part of this e.g. a bitcoin wallet.

Cons of Bitcoin Futures.

  • It is difficult to pinpoint accuracy as bitcoin futures are speculative. You cannot exactly be sure of the future price, which may lead to a loss.
  • If an investor speculates at the wrong time, the future may not bring good results.

Futures trading is easier to handle because we focus on the price action and not the assets. They make margin trading with high leverage possible. Futures contracts are a feature of Futures trading in crypto. This is an agreement to buy or sell any asset upon an agreed price, at a particular future date. This asset can be stock, commodity or cryptocurrency.

Types of the Futures contract.

  • Standard Futures Contract has expiry dates and settlements. You can find all the parts of standard futures contracts from traditional markets, in regular cryptocurrency futures.
  • Perpetual Contract: it does not rely on expiration dates. When the funding rate becomes negative, traders that have short positions pay longs while traders that have long positions pay shorts. They pay each other according to their open positions.
  • Futures With Physical Delivery: has expiry dates. These futures were first introduced by Bakkt. The cryptocurrency is delivered during the settlement process.

Pros of the Futures contract.

  • Almost all futures markets offer high liquidity, this enables traders and investors to enter and exit the market of their own choice.
  • There is no time decay involved. This refers to the period when assets decline over time and this reduces the traders’ profit drastically. As a future trader, time decay is not one of your problems.
  • The margin requirements for most currencies in futures markets are stable. This enables a trader or investor to know how much to put in a contract.
  • They protect traders against price fluctuations in currency exchange rates.
  • Futures contracts open up markets to investors that can take risks. They have access to markets they usually would not have access to.
  • Futures pricing is straightforward and easy to understand. The future price is determined by adding a cost-of-carry model to the spot price of the asset.

Cons of the Futures contract.

  • Most futures contracts have an expiration date and due to this, the prices become less attractive and the contract becomes a worthless investment.
  • High leverage can cause prices to fluctuate; go up and down every day.
  • When it comes to futures contracts, you have absolutely no control over future events. Weather changes and natural disasters can cause a change that you could not predict.

Factors to consider before trading Futures.

  • You need to pay attention to the expiration date because this is when you receive your money. You can always sell your open futures contract before the expiration date.
  • Look closely into the liquidity of any asset to determine its market fluidity and integrity, transaction speed and stability. As a trader, you should always consider the whole state of an asset and market.
  • Consider the leverage – a very important feature. Through leverage, you can boost potential profits, but with risks. As a beginner, do not bet on high leverage but stick to minimum leverage.
  • You should also consider the market volatility which comes with risks but brings opportunities, especially for short-termed

Advantages of Futures trading.

  • The trading volume in futures cryptocurrency is 2 – 3 times larger than that of spot trading volumes. It is easy and straightforward for even first time traders to work out. It is convenient and a great choice.
  • There are a lot of trading strategies to look forward to when it comes to futures trading. One of these is the fact that it allows you to go short without any blockers. This is an advantage that those who trade futures enjoy more.
  • Through trading futures, you can make a lot of profit. For example, you can enter a position that is worth $1000 while only using $10 as the capital!

Disadvantaged of futures trading.

The disadvantages of futures trading are all about the risks that come with it. Risks related to market volatility, leverage, and market liquidity. So far, there have been no complaints about hacking problems so you can rest assured that your information and every other detail is safe.

Now that you know more about futures trading, you can get to work. All you need to do is; set aside the necessary funds for your trading, invest a lot of time and effort in your crypto, trade virtual funds on a demo account and choose a trading platform that is suitable and reputable. You are good to go!

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Top 4 Tips for Choosing the Best Business Loans

Capital doesn’t have replacement regardless of the size of a business. For...

6 Best Practices of Credit Management for Large Organizations

Large businesses’ capacity to grow and maintain their financial stability depends on...

The Benefits of Hiring an Accountant for Your Business

Using accounting software can simplify financial management for business owners. Accountants play...

How to Become a Day Trader

Day trading is making money by buying and selling stocks, commodities, or...