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Cryptocurrency futures are one of the popular financial instruments in the digital asset market. They allow traders and other market participants to earn on price changes without the need to own the underlying asset. In this article, we'll go into detail about what futures are, how they work, and what strategies will help you make profits.
Cryptocurrency futures trading - what it is
Futures trading in the cryptocurrency market is a financial instrument that gives traders the opportunity to enter into contracts for the future purchase or sale of digital assets at predetermined prices. Unlike the traditional purchase of assets on the spot market, in the case of futures, you do not become the direct owner of the cryptocurrency, but only work with a contract that reflects its market value. Futures contracts allow you to profit from both ups and downs in the price of cryptocurrency. This makes them a popular choice among investors and traders seeking greater flexibility in managing their financial resources.
The main characteristics of cryptocurrency futures are:
1. Contractual obligations
A futures contract is a contract between a buyer and a seller:
- The buyer commits to buy the underlying asset (e.g. Bitcoin) at a fixed price in the future.
- The seller agrees to sell the asset at that price.
The contract can be fulfilled or finalized in advance by selling or buying it on the market.
2. Leverage
Leverage allows traders to increase the volume of their trades using borrowed funds rather than their own. For example, with 10x leverage you can open a $10,000 position with only $1,000 in your account.
- Advantages: large profits with minimal investment.
- Risks: Potential for large losses even with small price changes.
3. no need to own the asset
During futures trading, participants do not buy and sell the actual cryptocurrency. Instead, they speculate on price changes. This reduces the complexities associated with asset storage and security.
4. Positions: Long and Short.
- Long: opening a position to buy.
- Short: opening a position to sell.
Why invest in cryptocurrency futures?
Cryptocurrency futures have attracted the attention of traders and investors alike due to its unique features and flexibility. This instrument offers many benefits, making it popular in the world of digital finance.
The main reasons for investing in cryptocurrency futures are:
1. Opportunity to make money on any price movement
Long positions (buying): give profits in time of cryptocurrency price increase.
Short positions (sell): allow you to make money when the price of the asset falls.
Futures provide flexibility for traders, allowing them to earn income regardless of market direction.
2. High liquidity
Cryptocurrency futures are traded on leading centralized exchanges - Binance, Bybit, OKX.
and others, providing:
Fast order execution.
Minimal slippages (difference between expected and actual transaction price).
Availability of high liquidity makes futures suitable not only for short-term but also for long-term trading.
3. leverage
Futures offer opportunities for leveraged trading, increasing the volume of the transaction.
For example, with 10x leverage, you can open a $20,000 position with only a $2,000 deposit.
This allows you to make high profits on a minimal investment.
Important: Increased profit potential also carries increased risk, so it is important to use risk management.
4. Risk hedging
Futures provide investors and companies with a way to protect their assets from volatility:
Miners can lock in the future price of Bitcoin to minimize losses from a drop in its value.
Investors can use futures to insure their portfolios against sudden changes in the market.
5. No need to own the asset
When trading futures, you are only working with contracts and not the actual cryptocurrency. This:
Eliminates the need to hold cryptocurrency in your wallet.
Reduces the risks associated with security and loss of access to assets.
6. Access to new strategies
Futures allow traders to utilize different variations of trading strategies that are not available in the spot market:
Arbitrage: capitalizing on price differences between exchanges or contracts.
Hedging: reducing risks from market volatility.
Speculation: capitalizing on short-term price fluctuations.
7. Attractiveness to experienced traders
Futures provide a platform for professionals who want to utilize their knowledge and skills to generate profits.
The high volatility of cryptocurrencies makes them an ideal tool to generate increased profits for experienced traders.
The ability to set up automatic orders (stop loss and take profit, limit and trigger orders) helps to make trading more efficient and minimize potential risks.
8. Accessibility and convenience
Modern cryptocurrency exchanges provide user-friendly interfaces and educational materials that make it easy to start trading futures.
Easy registration.
A variety of trading tools.
Demo modes for training.
9. Low barriers to entry
Investing in futures does not require significant capital investments. The use of leverage and minimum deposits makes this instrument available to a wide range of traders.
10. Ability to automate trading
Futures trading bots allow you to:
Carry out transactions 24/7 without human intervention.
Realize complex strategies.
Reduce the influence of emotions on decision making.
Who futures trading bots are suitable for:
Experienced traders who know how to analyze the market.
Investors who want to minimize risks by hedging.
Speculators who want to capitalize on short-term fluctuations.
Where to start trading
Successful trading in the futures markets requires preparation. Let's review the key steps.
Choose a trading strategy
Decide which approach you prefer:
Long-term trades: suitable for traders willing to hold positions for a few days or weeks.
Short-term trades: more risky but allow you to capitalize on small fluctuations.
Prepare a trading plan
Determine your goals, investment amount and risk level. A plan helps control risks and minimize losses.
Risk management
Set stop losses (limit losses).
Use leverage with caution and do not inflate risk where it is unreasonable.
Do not use all leveraged margin in a single trade.
Responsible trading
It is important to remember that trading assets such as futures is high risk. Constantly analyze your trades and learn from mistakes, observe risk and mani management.
How do cryptocurrency futures work?
Key points of how futures work:
Leverage:
Futures allow you to use leverage to increase volume in your trades. For example, with 5x leverage on a $1,000 deposit, you can open a $5,000 position. This increases not only your profits but also your risks - this is important to always keep in mind.
Margin trading:
A collateral amount (margin) is required to open a position.
If the price moves against the trader, there is a risk of liquidating the position.
Risks:
Futures have higher risks due to the high volatility of cryptocurrencies.
If risk management is not followed, you can suffer significant losses in a short period of time.
Long position
A long position is a strategy where a participant buys futures with the expectation that the price of the asset will rise.
How it works:
Position opening:
A trader buys a Solana futures at the current price, for example, $200.
His expectation: the price will rise to $300.
Closing the position:
When the price reaches $30,000, the trader sells the contract and makes a profit.
The profit is calculated based on the difference between the buy and sell price ($300 - $200).
Example: If a trader bought a contract for 1 Bitcoin for $25,000 and sold it for $30,000, his net profit will be $5,000 (excluding commissions and leverage).
Short Position
Shorting is a strategy where a participant sells a futures contract with the expectation that the price of the asset will decline.
How it works:
Position opening:
A trader sells a Solana futures at the current price, for example $250, even though he doesn't own the actual Solana at the time of the trade.
His expectation: the price will fall to $200.
Closing the position:
When the price falls to $200, the trader buys the contract back, locking in a profit.
The profit is calculated as the difference between the selling and buying price ($250 - $200).
Example:
If a trader sold a contract for 1 Bitcoin for $25,000 and bought it back for $20,000, his net profit would be $5,000 (excluding commissions and leverage).
What is the difference between cryptocurrency futures and spot trading
Spot and futures trading are very different in their mechanics:
Asset ownership
Futures: involves no actual ownership of cryptocurrency.
Spot trading: the trader buys assets and becomes their owner.
Settlement speed
Futures: transactions are settled quickly, regardless of blockchain processing time.
Spot trading: may depend on network congestion.
Leverage
Futures: provides access to leverage, this allows for larger positions.
Spot: there is usually no leverage.
Hedging strategies
Futures are effective tools to protect assets from price changes.
Example of cryptocurrency futures trading
Let's say the current price of BTC is $100,000. You forecast that it will reach $105,000 in a week's time. When you enter a long position with 5 leverage on $1,000, you will have access to the equivalent of $5,000. When the price rises to $105,000, your profit will be $250 minus commissions.
Futures trading bots from Veles
Trading bots simplify futures trading by automatically executing trades based on predefined algorithms.
Benefits:
Time savings.
Reducing the influence of emotions on trades.
Ability to trade 24/7.
Veles Finance offers ready-made strategies and convenient settings for automated trading in the futures market.
Conclusion
Cryptocurrency futures are a powerful tool for earning money, which opens up a wide range of opportunities not only for experienced traders, but also for beginners. However, their use requires a responsible approach, knowledge of the market and the ability to observe the trading system and risk management.
FAQ
1. Is it possible to trade futures without experience?
It is recommended to first learn the basics of the market and test strategies on demo accounts.
2. What leverage should I choose?
It is better for beginning traders to use minimum leverage to reduce risks.
3. Are there any risks when trading futures?
Yes, the high volatility of cryptocurrencies can lead to serious losses, especially when trading with high leverage.
4. Do I need to undergo verification to trade futures?
Most exchanges require users to have KYC to trade in futures markets.
5. Which exchange to choose for trading?
Popular exchanges with high liquidity are great for beginners and experienced traders - Binance, Bybit, OKX.
