There are several ways to get exposure to cryptocurrencies, but the future trading method is one of the famous and most suitable approaches. So are you aware of what is crypto futures trading?
Here is everything you need to understand about what is crypto futures trading and its complexity.
What Is Crypto Futures Trading?
Crypto future trading is different from spot trading in many ways.
First, crypto future trade doesn’t allow you to directly purchase, sell or hold any crypto assets to participate. Instead, traders look to buy or sell a futures contract representing a cryptocurrency value on a specific date somewhere in the future.
The Crypto future will allow investors to contemplate the future value of any cryptocurrency. For example, the investors can either go long gambling on the price in advance or go short if they sense a drop.
One of the vital benefits of the crypto future is leverage. The leverage will allow better capital efficiency as pitchers do not have to lock up the total amount of the capital. However, using force will increase both potential returns and risk, so investors should be cautious.
That is why all the traders should use a leverage amount that suits them perfectly. For instance, if you are new to cryptocurrency trading, only 2× and 5× leverage will be sufficient. Leverage gives the chance to exercise future trades as a shielding verge for portfolios. If a capital performs poorly or is opposite what you estimated, a future trade will blockade against the outcome to compensate for your loss.
How Does Future Trading Work?
If you have ever watched the process of crypto future trading on a crypto exchange platform, you couldn’t tell the difference from regular trading. All the traders do the same thing in open long and short positions and execute proper risk management techniques.
However, future trading differs from spot trading because it doesn’t work with the underlying capital; it only works with a price. Without any actual money, futures will be fluid and easier to handle. Also, they will entitle a high leverage margin trading.
About Future Contract
Future contracts made logic for various commodities like food, oil, and metals. But, they went beyond its practical reason to overcome all financial markets made up of cryptocurrencies.
Contract tracking is an underlying capital such as commodities, stock, or crypto coins. In recent times, most of the commodity price figures you see on financial portals involve futures with a monthly expiry date. In short, the futures contract is an agreement between two parties for either one of the two- buy or sell an asset, like cryptocurrency, on a predetermined date, and at an estimated price. So we can say that it is a kind of bet on future price movements.
For example, suppose you think that any particular crypto coins per se Bitcoin price will increase by the end of a month. In that case, you intend to open a long-term position on the cryptocurrency by Buying a Bitcoin future contract with a monthly expiry date. And if you speculate Bitcoins price will go down, you can go long. And the expiry date of the agreement, the two parties involved in the exchange will settle it, and the contract mutually closes.
Moreover, a future contract condition will expire; there is a subcategory of a future cryptocurrency called perpetual contracts. The thing that differentiates the perpetual contracts from the rest is that they do not expire. It behaves the same as the traditional futures but is devoid of expiry and settlement.
The value of a perpetual contract monitors the crypto spot price and exchange very close to it. The primary mechanism that makes perpetual contracts possible is the funding rate, where longs and shorts make regular payments to each other based on the Crypto Market Cap situation.
Benefits Of Crypto Future Trading
Cryptocurrency’s future has become very famous for excellent reasons. some of the advantages of crypto future trading are that you should know are-
- Convenient- crypto futures trading is the same for beginners as actual trading cryptos that give you the liberty to a liquid market and have a secure digital wallet. That is why the trading volume in the crypto future is two to three times more massive than the spot trading volumes.
- More significant Potential Profit- The profit is typically more sturdy when trading crypto futures with leverage. However, you should note that the risk of loss is also higher when using leverage.
- Flexible Trading Schemes- the practice of futures trading strategies works much better with crypto futures than trading actual cryptos, especially if it is intra-day trading. Crypto future will allow you to go short without any blockades. Thus there is more room for you to exchange different trading strategies to increase profit.
Risks In Crypto Future Trading
Some investors think that the crypto market is not mature enough for the future needs to exist. Some experts claim that instability in crypto coins might spread to other parts of the future market.
However, crypto futures trading platforms have reported no minor incidents, as most of them are not incapable of hacking attacks, unlike any regular crypto exchange that stores clients’ crypto holdings.
Still, several risks are related to market volatility, poor future trading strategies adopted from traditional markets without any general adjustments, and higher- than any recommended leverage, which is intriguing for newcomers.
How To Trade Crypto In The Future?
Crypto future trading is no different from any other trading form, and the difficulty level depends on the leverage you choose. You should follow some good rules while trading in the crypto future. Some of the main steps to start the crypto future trading journey is-
- Set aside some funds
- Dedicate your time
- First, trade on a demo account
- Choose a suitable future trading platform
Crypto future trading can be fruitful if proper risk management is applied. However, it is a good case synopsis as all the forms of trading have some considerable risk that should not be ignored.