A Quick Guide to Crypto Futures: What You Should Know

It has been almost a century since derivative contracts were introduced to the trading world, but cryptocurrency is a relatively new addition to trading platforms.

Today, digital assets can form a significant part of an investor’s portfolio, and their volatility makes them ideal candidates for futures products.

The cryptocurrencies The market is a commonly traded derivative, and it also contains many well-established derivatives. The general public confuses futures with options, but they are completely different instruments with distinct advantages and disadvantages.

Futures are financial contracts that oblige an investor to buy or sell an asset at a predetermined price and future date; the buyer of a futures contract must buy or sell the underlying asset at the fixed price, regardless of the market price on the expiration date.

An option is similar in that it is a derivative product, but the buyer of the option is not obliged to exercise it in the future.

The following guide explores some of the nuances of cryptocurrencies.

What is Crypto Futures?

Traders can access cryptocurrencies without buying the underlying assets by trading futures with a USDT margin. A similar concept is a commodity index or derivative contract, in which an investor assumes a risk related to the future value of a commodity.

Consequently, a cryptocurrency contract represents a certain amount of bitcoin or ether. When a cryptocurrency contract expires, the transaction is settled in cash instead of the underlying digital asset.

Cryptofutures are usually very risky investment instruments, but savvy traders can use futures to hedge risk and protect themselves from adverse market conditions. The volatility of digital assets presents unique challenges.

Take for example the idea of ​​short selling a futures contract – essentially entering into a contract where you “sell” the underlying asset and then have the opportunity to “buy” it back, ideally at a lower price in the future, and make money on the difference .

In this example, one can buy the underlying asset, let’s say BTC, as well as a cryptocurrency contract for “short” BTC. If the BTC price rises, the trader gains on the increase in value of the asset, but loses some money on the option contract

When “short selling” a futures contract, they buy a contract to sell at (ideally) a lower price in the future – no loan of money or purchase of the underlying asset is required.

This mechanism enables holders of cryptocurrency contracts to profit regardless of whether the price of the underlying asset rises or falls.

It is also worth noting that cryptocurrency futures do not involve actual cryptocurrency ownership, but rather a risk-based investment based on price movements. Investors can also lose money on the purchase price of the contract, and instead of just taking a percentage loss on the price of the underlying asset (let’s say BTC falls 10%), they can take a 100% loss on the cryptocurrency contract if it does. does not go out as planned. Crypto-futures stand out for investors because most marketplaces offer the use of influence, which increases the possibility of gain or loss.

This is why it is important that traders should understand the basics of cryptocurrencies before investing due to the high volatility associated with derivatives trading.

Crypto Futures: How Do They Work?

There are several exchanges and providers that offer trading in futures and options; Binance Futures, for example, offers 24-hour trading in cryptocurrency futures.

Recent Thoughts: Basics of Crypto Futures

Crypto-derivatives are complicated, and both beginners and experts can lose large sums in a short period of time.

This article will help you understand the basics of cryptocurrencies, but it is not meant to be a “quick track” on how to actually use them. A deeper understanding of crypto derivatives begins with getting acquainted with their basic concepts.