What is Crypto Futures Trading – Beginner’s Guide

08/23/2022By: C, Fiona

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Futures trading is one of the most common and convenient ways to gain exposure to the cryptocurrency market. To help you better grasp the complexities of futures trading, we have provided the following. In what ways it can offer more favorable prospects than spot trading and options trading. Ability to open both long and short positions in several different types of digital currency. What you need to know is detailed below.

Futures trading is a way to speculate on the value of assets, including cryptocurrencies, without really owning them. Like commodity or stock futures, cryptocurrency futures enable traders to wager on a digital currency’s future price. Naturally, Bitcoin futures are the most widely traded cryptocurrency derivative.

 

Crypto Futures Trading, Explained

In contrast to spot trading, participants in futures trading for cryptocurrencies need not physically possess any of the underlying assets. Derivatives contracts, which are bought and sold instead, indicate the value of a cryptocurrency on a future date.

Futures trading enables investors to make predictions about a cryptocurrency’s price movement. Speculators can “go long” to profit from an increase in price or “go short” to hedge against a decline.

Use of leverage is a major perk of trading futures.

Due to the use of leverage, traders can increase their capital efficiency by not having to commit their full trading capital. It raises the stakes in terms of both potential profits and losses, so traders should proceed with prudence.

For individuals just starting out in the futures market, a leverage of 2x or 5x is generally accepted. In particular, for investors who plan to protect their holdings with crypto derivatives. For example, if an asset performs poorly or in the opposite direction of what is speculated, a futures deal that uses a certain amount of leverage to protect against this event can offset the loss.

 

 

 

What to Consider in Crypto Futures Trading?

 

Margin Trading

Nowadays, most futures trading platforms offer margin trading, whose most important feature is leverage. Leverage allows traders to increase their potential returns, but the associated dangers are proportional to those returns. Bybit’s perpetual contracts have a leverage of up to 100x, while Binance’s go as high as 125x, while most cryptocurrency exchanges only go as high as 50x. Even though experienced traders can make money by trading with high leverage, there is always the chance that their position will be closed for a loss.

Newcomers to futures trading should not risk too much money on leverage, although a small amount of leverage could prove effective. The margin required to trade is based on the leverage chosen. If a trader uses 10x leverage, only 10% of his own money is at stake while the remaining 90% is borrowed. It comes either directly from the exchange or indirectly through dealers who lend money at a high interest rate.

 

Hedging

Crypto futures trading is a great way to protect your portfolio from the risk of a sudden drop in the value of cryptocurrencies or traditional assets. Bitcoin futures are the preferred hedging instrument of institutional investors. Since the futures contract has a set price for the expiration date, trading Bitcoin futures shields you from the steep drops in BTC price that can occur on the spot market.

 

Diversification

Cryptocurrency futures provide another avenue for portfolio diversification in addition to hedging. In the world of trading and investing, diversity is widely acknowledged as a top tool for keeping your capital safe. You can establish a diversified portfolio of futures contracts by opening numerous positions in Bitcoin(BTC), Ethereum(ETH), Chainlink (LINK), and many other tokens. You can reduce your exposure to a single asset’s potential price fall in this way.

 

The Volatility of the Market

Understandably, the extreme volatility of cryptocurrencies and associated futures markets is a crucial consideration for traders. And while this is framed primarily as a threat, it actually opens up new possibilities. That’s a big deal for day traders and other investors who focus on making quick profits off of little price changes. If we compare the cryptocurrency market to the forex or stock markets, it is still relatively modest. Consequently, whales and other events with widespread market impact can cause significant price swings in digital assets.

 

Date of Expiration

Imagine you engage in the trading of standard cryptocurrency futures with a cash settlement. You should keep an eye on the settlement date if this is the case, as this is when you will receive your cash or stablecoin upon contract settlement. A futures contract that is open at any time before its expiration date can be sold. As a result, you will either make a profit or a loss based on the fluctuation of the spot price.

 

 

 

Where to Learn More About Crypto Futures Trading ?

This is a wonderful place to start if you’re interested in learning more about cryptocurrencies and trading with them.

Some informative pieces can be found here. You can pick it up at an introductory level and work your way up to advanced concepts and nuanced discussion as you see fit. Traders of any experience level are encouraged to open an account with BTCC.

 

Read the following Posts for additional information about BTCC Futures:

How to Trade Crypto Futures Contracts on BTCC

What is Leverage in Cryptocurrency? How Can I Trade at 100X Leverage?

How do contracts trade on BTCC? BTCC Account Guide.

Best Crypto Exchange to Trade with Leverage

Best High Leverage Crypto Trading Exchange Platform

Conclusion

Because of their lower risk of cyber assaults and greater convenience, bitcoin futures are favored by both institutional and individual traders.

When comparing the two types of derivatives that deal with cryptocurrencies, crypto futures continue to enjoy greater favor. The buyer of a call option or a put option has the right, but not the responsibility, to purchase or sell the underlying asset at an agreed upon price and time frame during the term of the option contract.

Both derivatives give investors the chance to try out novel trading forms while also protecting themselves from the potentially disastrous effects of price volatility.


 

Why trade crypto futures on BTCC?

  • Largest variety of futures: Daily, weekly, quarterly&perpetual
  • Flexible leverage from 10x to 150x
  • Lowest trading fees 0.03%
  • Industry-leading market liquidity
  • Plenty of campaigns to win exciting rewards