What Is Crypto Futures Trading

Crypto futures trading provides a platform for the investor to bet on the future price of assets without owning them.

Futures trading is a trading contract that requires an agreement between two parties. The parties fixed the price and date to buy or sell a known asset. 

In futures trading, it is possible that instead of directly making a transaction of cryptocurrency that requires maintaining a crypto wallet, an investor can indirectly have exposure to bitcoin and might even generate profit from it. 

How Does Crypto Futures Trading Work?

There are three essential elements of crypto futures contract to work-

• Expiration date: It is the discussed date for the contract to be settled. On this date, one party buys the asset from the other party at the agreed price. But, traders can sell their contracts to another investor if there is profit.
• Per unit contract:  It defines the worth of an asset for each contract. The contract worth varies from platform to platform.
• Leverage: It allows traders to borrow capital and boost their trading by attracting potential buyers. Later, after successfully amplifying their trade, they can pay back.

Guide To Trade In Crypto Futures

Crypto futures trading is not much different from other trading platforms except that the risk depends on the type of leverage one picks.

Most of the rules deal with risk management, therefore, it is beneficial for the trade. Here are some tips for a great start to your journey-

• Save before investing:  A golden investment rule is to never invest more than you can lose. It means always having some fixed amount of funds by your side. It is very critical advice for risk management.
• Make time for it: Crypto futures trading is a serious business. Although it is safe for beginners, one should not think of it as an amusement. Be consistent about putting effort and dedicate a fixed duration of time to build a lucrative business out of it. 
• Trade on a demo account first: To be safe initially, trade with the virtual funds on a demo account. The platform generally mimics the spot price of the cryptocurrency before proceeding to futures. There are many free demo accounts available to trade.
• Choose a futures trading platform wisely: When choosing futures trading, start with small stocks but trade on a reputed exchange. Reputation plays a vital role while determining a crypto exchange. And, always make sure to keep up with the best market exchanges happening around you.

The Benefits of Crypto Futures Trading 

As more people know about Crypto futures trades, It has gained quite a popularity in the past few years. And why not?

It has some excellent benefits that encourage people to learn the skill. Know about crypto futures trading benefits here-

Opportunistic

There is no need to access the liquid market or to maintain a digital wallet.

The methods are easy to understand and without much risk. It is a safe space for beginners to test their skills.

And this might be the reason for the high trading value of crypto futures.

High Potential Profits

The profits are significant in crypto futures trading compared to others.

If one learns to select the matching leverage with the necessary risk, one can earn well in this market.

Also, the platform creates an equal chance for everyone to enter a worthy position with small capital.

Adaptable Trading Strategies

The trading strategies perform better with crypto futures when compared to trading with actual cryptocurrency.

Also, it is noteworthy that crypto futures are flexible enough to let an investor go short without any blockers.

The platforms allow investors to work on various trading strategies to make more profits.

No Funding Rate

 A truly remarkable feature of crypto futures is not having any funding rate. And, the prices of stock are often lower than the forward price.

Or on a positive lookout, the future price is generally higher than the spot price or cash price of the stock.

This situation opens an opportunity for a market-neutral strategy, which is referred to as cash and carry arbitrage.

It combines the investment or purchase of a long position as an asset like a stock and the sale or short position in a futures contract.

On the expiration day, the futures price combines with a spot price and generates riskless returns. The returns are not affected by market conditions or volatility situations.

Risk To Consider Before Starting  Crypto Futures Trading

All trades are subjected to market risk, and futures trading is no exception. Here are some key elements a wise investor should beware of

Leverage Trading  

Leverage trading can assist in boosting possible profits, but the risk is equally dangerous here.

For beginners, it would be wise to play safe by avoiding betting on high leverage.

Start with the lowest leverage level to grasp the process better. The selected leverage will determine the trading margin. 

Liquidity Assessment

In futures trading, there are three standard measures to determine liquidity. The metrics are asset, exchange, and market liquidity.

The trader should always be aware of potential buyers, sellers, and the whole state of assets and the market.

The close inspection of new asset liquidity shows market integrity, speed of transaction, and market fluidity.

Evaluating the stability of assets promotes the quick exchange of an asset for cash without much price slippage.

Market Volatility

High volatility is one of the major subjects to master when an investor is learning about trading cryptocurrencies.

Although volatility is represented as a risk factor, it also offers more opportunities.

It is mostly in favor of short-term traders who can easily speculate on quick price movements.

Diversification

It is well-known that capital diversification is a smart strategy for money management.

Investors and traders are encouraged to open multiple positions to develop a diversified portfolio of futures contracts.

This method will save the trader from the sudden price decline of a single asset.