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.
The platforms for quality crypto futures trading:
- Binance Futures
- White BIT
Take an example. You and your friend have opened a BTC futures position at the level of 40,000 USD. You have opened a “long” position, and your friend has opened a “short” position. At the end of the trading period, the asset’s price has risen to $45,000. In this case, your friend owes you $5000, and you receive $5000.
There are also futures contracts without a term. These contracts do not contain a precise date. The contracts are kept close to the spot price level through a financing mechanism. This means that traders are paid or receive compensation depending on their position at a given point in time. If the price momentum is positive, the party that has gone “long” is obliged to pay the party with the short position.