Trading futures contracts in cryptocurrencies is a way for traders to profit from price changes without having to own the underlying asset.
They can sell high and buy low, a strategy known as short selling.
This market is particularly appealing to traders because it allows for capital efficiency through the use of leverage.
In recent years, more trading platforms have started offering cryptocurrency futures, which have become a significant part of many investors' portfolios due to the volatility of digital assets.
However, it's important to note that futures are not the same as options, despite being commonly mistaken for each other. They offer different benefits and should be understood separately.
What Are Crypto Futures?
Trading futures contracts, like USDT-margined futures, allows you to invest in cryptocurrencies without actually owning the underlying asset. This is similar to stock indices or commodities derivatives where you bet on an asset's future value. The value of a crypto futures contract is based on the digital asset it represents, like Bitcoin or Ethereum.
When a crypto futures contract expires, the trade is settled in cash instead of the actual asset.
A key benefit of crypto futures trading is that it can help protect you against market fluctuations. You can buy low and sell high, known as short selling, to profit from price differences. This means that you have the opportunity to make money no matter which way the price of the underlying asset moves.
You can trade crypto futures 24/7 on platforms like Pexpay Futures. However, it's important to remember that futures trading is associated with high volatility, so it's crucial to manage risks carefully and educate yourself about the basics before investing.
How Do Crypto Futures Work?
Traders see the challenges that come with digital assets, such as high volatility and negative publicity, as opportunities.
One of the key benefits of crypto futures trading is that you can profit from price changes without actually owning the cryptocurrency.
Here's a simple example:
John bought a long futures position when Bitcoin was at $40,000 and Sarah bought a short position at the same time. When the price went up to $45,000, they both decided to close their positions. Sarah, who had a losing trade, had to pay the exchange a deficit loss of $5,000 ($45,000-$40,000 = $5,000). On the other hand, John received a profit of $5,000 from the exchange.
Basic Concepts of Crypto Futures Trading
Before trading crypto derivatives, it's important to understand the key concepts involved. Here are a few terms to help you on your journey to becoming a successful crypto derivatives trader.
Leverage is what attracts many traders to the futures market, making it a capital-efficient option. With a futures contract, you can buy into a position at a fraction of the cost compared to buying the actual cryptocurrency on the spot market. For example, while buying 1 Bitcoin on the spot market would require thousands of dollars, a futures contract allows you to do it with much less.
To enter into a futures position, you'll need an initial margin, which is the percentage of the position's value that must be covered by collateral, such as USDT. The maintenance margin is the minimum amount you need to keep your position open. If your maintenance margin limit is hit, your open position will be liquidated.
In contrast to traditional futures contracts, crypto perpetual contracts don't settle. To keep the index and futures prices in sync, exchanges use funding rates. Funding rates are calculated based on the price difference between the spot and futures markets and will result in either paying or receiving funds, which can have an impact on your position. For example, in a hot bull market, funding rates can surge, making it expensive to hold long positions.
Pros & Cons of Trading Futures
Trading crypto derivatives like futures has both benefits and drawbacks. Here's a quick overview of what to expect:
Ability to profit in any market direction
Access to leverage, allowing for larger positions with smaller capital
Protection against adverse market conditions
Higher risk compared to traditional investments
Requires knowledge of fundamental market mechanics and risk management techniques
Need to maintain a minimum margin to keep positions open
Funding rates, which can affect the cost of holding positions, may surge in overheated markets.
How to Trade Futures Contracts on Pexpay?
Trading crypto derivatives contracts on Pexpay Futures is easy. You can get started by following these steps:
Register through email or phone number on Pexpay.
Deposit funds to your futures wallet, such as USDT or any other cryptocurrencies supported by Pexpay Futures.
Select Pexpay Futures Trading on the web or mobile application
Select the appropriate amount of leverage for your position.
Place buy-limit, buy-market, or any other type of orders available on Pexpay Futures.
Crypto derivatives trading allows you to make predictions about the future value of digital assets. It can be a profitable venture, but it requires a good understanding of the market and a strong risk management plan.