As digital assets such as Bitcoin and Ethereum become the most prevalent throughout media resources, novice traders find ways to get into cryptocurrency trading. The easiest trading option is the spot. It implies buying digital assets “on the spot.” There are other trading instruments, for example, margin, p2p, and cryptocurrency futures trading. In this article, we would like to discuss futures and how they work.
What Does Futures Trading Mean?
Unlike spot trading, you do not buy and hold digital coins immediately. Instead, you buy an agreement to buy coins and mention the day and the value you expect the asset will reach. This trading tool allows earning on the declining and growing markets. How is it possible to make a profit when the market is falling? The answer is shorting.
Shorting means selling your coins, expecting the asset to lose in value, and then buying coins back at a lower rate. In such a way, you receive money before the market drops and get the same number of coins in the end.
To earn on the growing market, you open a futures agreement and indicate that you will buy coins at a lower price.
In both cases, correct price prediction is essential. If your forecast is wrong and the market moves in another direction, your position will be liquidated.
In futures trading, they often use leverage. It is borrowed funds for opening a more favorable position. Simply put, you have $50 and want to open the position for $100. So you may take a 2X leverage. The best leverage ratios are 2X and 5X. You should not use higher leverage because the more you borrow, the more risk you take.
Crypto Futures Exchanges
FTX used to be the best crypto futures exchange in the market, but it collapsed in November 2022 because of financial troubles. Today the best platforms for cryptocurrency futures trading include:
- OKX Futures
- Binance futures
- WhiteBIT
- BitMEX
- ByBit.
If you are a beginner trader, try the WhiteBIT platform, for it has the most intuitive interface and demo trading option. It will help you understand how futures cryptocurrency trading work and try different leverage ratio to see all the risks and benefits.
