What Are Cryptocurrency Futures?
Cryptocurrency futures are contracts between two users that bet on a cryptocurrency's future price. They allow users to gain exposure to select cryptocurrencies without purchasing them. Crypto futures resemble standard futures contracts for commodities or stocks because they allow you to bet on the price trajectory of an underlying asset.
There are many ways to get exposure to cryptocurrencies, but futures trading is one of the most popular and convenient approaches. Here are all you need to understand the intricacies of futures trading better. In which it can provide better opportunities compared to spot trading and options trading. To know how to open long and short positions on multiple digital currencies. Here’s exactly what you need to know.
How to Trade Bitcoin Futures?
The first thing a user needs to determine when trading Bitcoin futures is the contract’s duration. Exchanges for crypto derivatives usually offer weekly, bi-weekly, quarterly options, and more.
For example, a weekly trade of Bitcoin contracts with each contract amounting to $1 of Bitcoin priced at $10,000 would require 10,000 contracts to open a position worth 1 Bitcoin.
A user can either bet on the price of Bitcoin increasing (going long) or decreasing (going short). In either case, the exchange platform will match the user with someone who went the opposite direction in terms of betting. When the time comes for the contracts to be settled, one user will need to pay up, depending on whether the price of Bitcoin has gone up or down.
How to Trade Bitcoin Options?
“Call” and “put” are to Bitcoin options as “going long” and “going short” are to futures. A call option gives the right to purchase Bitcoin at an agreed price upon contract expiry. A put option gives the right to sell Bitcoin at an agreed price upon contract expiry.
For example, let’s say a user purchases a call option for Bitcoin at $20,000, with a contract that expires in a month. If, by the end of the month, the price of Bitcoin has risen to $25,000, the user will likely exercise their right to purchase it and make a profit.
On the other hand, if at the end of the month the price has dropped to $15,000, the user will likely choose to let the option expire so as to not incur a loss, except for the premium he initially agreed to pay to buy the contract.
How to Trade a Perpetual Contract?
If a lot of users have long positions, with the price of perpetual contracts rising incrementally above the spot price, there would be no incentive for people to open short positions. The result, then, is a positive funding rate.
Having a positive funding rate means that all long positions must pay all short positions. On the other hand, a negative funding rate means that all short positions must pay long positions.
This arrangement helps incentivize users to close long positions, as well as open short positions to bring the price of the asset (e.g., Bitcoin) back to its actual market price. Payments are made directly to users and are not made via exchanges.
How to Trade Crypto Futures?
Trading cryptocurrency futures is no different from other trading forms, and the difficulty level depends on the leverage you pick. You should follow most of the valid rules when trading the spot markets or other derivatives, be it CFDs or options. Most of the rules have to do with risk management and finding the best entry and exit points.
Here are the main steps to successfully start your crypto futures trading journey:
- Set aside some funds
One of the most critical risk management recommendations is you should never invest more than you are ready to lose. And never borrow to trade unless we’re speaking about the technical borrowing used in margin trading.
- Dedicate time
You shouldn’t treat your crypto futures trading as a hobby if you plan to turn it into a lucrative activity. Make sure to dedicate time to learn futures trading, find the right entry points, and monitor your open positions.
- Free Trading Bonus
You can start trading by using trading bonus where you will get 5% from your deposit amount and we also cover 50% of your losses.
How Profitable Is Crypto Futures Trading?
Crypto futures trading can be very profitable if proper risk management is implemented. For regular users, this activity can be more profitable than Bitcoin mining, given that the latter requires expensive equipment. However, this is the best-case scenario. As with any form of trading, there are considerable risks that should not be ignored.
Cryptocurrencies are subjected to high market risk and volatility despite high growth potential. Users are strongly advised to do their research and invest at their own risk. BitMart will do its best to list only high-quality coins, but will not be responsible for your investment losses.