How Does Crypto Futures Work?
The cryptocurrency market provides many different tools for generating income, for example, you can put your crypto coins in staking and receive passive income in the form of additionally accrued coins, or you can practice a somewhat more risky financial instrument – crypto futures trading. This article will answer the question, what are futures in crypto.
What is Futures Trading Crypto?
A futures contract is made between two traders who agree on the future price of an asset (or commodity) (at a given point in time) and oblige to execute their contract on the end date of the contract. Each party must predict the future price of the asset. Such agreements became popular almost a century ago. Crypto futures trading emerged in 2017 and has become a common instrument on most crypto exchanges. Now let’s look at the services that make this instrument possible.
How to Trade Futures?
By opening a cryptocurrency futures position, the user gains access to cryptocurrencies but does not own these assets. This type of trading protects traders from the high volatility of digital assets. As the prices of cryptocurrencies can change rapidly, falling one day and rising sharply another, these fluctuations allow traders to buy at a lower price and sell when the price has risen, or vice versa. Thankfully, beginners in trading can use a Forex software for traders to manage their investments. Read Alchemy Markets Review if it’s the right tool for you.
The Platforms for Quality Crypto Futures Trading:
- Binance Futures
- White BIT
- ByBit
Example of a Futures Trade
Imagine you and a friend open a BTC futures position at a level of $40,000. You decide to take a “long” position, betting that the price will go up, while your friend takes a “short” position, anticipating a price drop. At the end of the contract, if the price rises to $45,000, your friend owes you $5,000, and you receive a $5,000 profit. This example demonstrates how futures contracts can offer opportunities to benefit from price movements without directly owning the underlying asset.
Perpetual Futures Contracts
In addition to fixed-term contracts, some platforms offer perpetual futures contracts, which do not have a set end date. These contracts are kept near the spot price through a financing mechanism, where traders are either paid or required to compensate the opposing party based on their position at any given time. For instance, if the market momentum is positive, those in a long position may pay a fee to those holding a short position. Perpetual contracts offer flexibility, allowing traders to hold positions indefinitely, so long as they can meet any financing costs associated with their trades.
Futures trading in the cryptocurrency world has opened up new possibilities for those looking to diversify their strategies, and combining crypto futures trading with tools traditionally associated with Forex can provide a more comprehensive approach to managing both forex and crypto markets.
