Have you been trading crypto for a while now and want to upgrade your experience? Do you think you’re ready to take the next step and level up as a crypto trader? Well, meet crypto futures contracts!
Futures trading is an advanced trading activity. If words like margin trading, shorting, and stop loss orders mean nothing to you, we suggest you read our beginner trading guides first. Click on the term you want to learn more about to see a relevant guide.
Futures Contracts: Essentials
Futures have always been an essential part of the trading world – after all, they have existed for hundreds of years. To put it simply, they’re a legal agreement to buy or sell a certain asset at a set price at a predetermined time in the future.
Here’s an example: imagine you own a flower shop, and one of your biggest sellers is tulip bouquets, most of which are supplied to you by your contact in the Netherlands. Lately, because of climate change and the abnormal weather conditions it causes, the supply of tulips has been dwindling – and you are afraid that their price will rise.
So, to safeguard yourself against a possible major future loss, you enter into a futures contract with your tulip supplier: one year from now, you will buy tulips from him at today’s market price. Of course, tulips can become cheaper instead – after all, nobody can predict what’s going to happen. You may still lose money – but there’s a big chance you’re going to make a profit instead.
Being able to predict future outcomes and knowing what risks to take (buying/selling at a predetermined price vs. at the future market price) is essential to knowing how to trade Bitcoin futures contracts successfully.
Please note that the contents of this article are not financial or investment advice. Do your own research before investing in any asset.
What Are Futures in Crypto?
Of course, futures contracts in both regular and crypto trading are slightly different from the one we’ve described in our tulip example. Although they’re also sometimes to hedge (limit) costs, futures in trading are usually aimed at earning profit via speculation on a future price of an asset.
That contract allows you to basically lock in a price of an asset, which in our case is Bitcoin, and benefit from its future price movements no matter what they are.
How Does Bitcoin Futures Trading Work?
Here are some things you need to know to understand how Bitcoin futures contracts work.
Just as the name suggests, an entry point is how you begin (enter) a trade. There are two main ways to do it:
- Long (an agreement to buy an asset at X price on Y date)
- Short (an agreement to sell an asset at X price on Y date)
Long positions are considered to be against the market – you get profit when the underlying asset’s price goes up. Let’s say you buy a Bitcoin futures contract that states you will buy 1 BTC in one week for $30k. During that week, Bitcoin experiences a price surge and is now worth $40k instead – so you buy it for $30k as per your contract and then sell it for $40k, earning $10k profit. Please note that this is a very simplistic explanation – but it should give you an idea of why and when to open long positions on the Bitcoin futures market.
Short positions are, naturally, the complete opposite of long ones. You get profit when the underlying asset’s price goes down. You enter a futures contract to sell an asset at a high price specified in the contract for subsequent repurchase at a lower price.
You can read an in-depth description of what leverage is here. In short, it allows you to open a futures BTC position at a fraction of a cost of an actual Bitcoin.
Margin is the amount of collateral you need to have on your account in order to actually trade Bitcoin futures. The higher the amount of the trade, the more money you will have to deposit to your trading account.
There are two types of Bitcoin futures contracts: perpetual ones and ones that have an expiration date. Once a futures contract reaches its expiration date, it gets settled, and the trader’s account either gets credited or debited depending on whether there’s a profit or loss.
Liquidation happens when the current market price of the underlying asset reaches the established liquidation price. Part of the trader’s margin collateral will be used to attempt to cover the loss, and if there’s a surplus left, it will be returned to the trader.
Settlement is what the trader is given/has to give once a futures contract is settled. In most cases, cash settlement is used, meaning that no exchange of the underlying asset actually takes place.
Perpetual Futures Trading
A perpetual futures contract is one that doesn’t have an expiration date.
Where Can You Trade Bitcoin Futures?
Pros and Cons of Trading Bitcoin Futures
Futures trading is extremely risky even for relatively non-volatile assets, so, naturally, it is extremely extremely risky when it comes to crypto and Bitcoin. Despite this (or, in some cases, because of this), many users still choose to trade Bitcoin futures.
- The biggest benefit of trading Bitcoin futures comes from the age-old notion “the higher the risk, the higher the reward”;
- The high leverage on the Bitcoin futures market allows traders to have less initial capital to have big profits;
- The ability to benefit from a coin’s price movements without having to hold it, thus risking losing your keys, having your wallet hacked, and so on;
- Bitcoin futures contracts can also help to mitigate the risk of sudden price crashes and extreme price volatility;
- With Bitcoin futures contracts, you can bet against the market and benefit from both price decline and increase.
- The risk is extremely high both because of the nature of the crypto market and the high leverage;
- The crypto market is highly volatile, so opening long-term Bitcoin futures positions is extremely risky.
Do I Need a Digital Wallet or a Broker to Trade Bitcoin Futures?
You don’t need a crypto wallet to trade Bitcoin futures contracts if your cryptocurrency exchange or broker offers cash settlement since no actual Bitcoin is exchanged during the transaction. The only thing you need to start trading Bitcoin futures is to set up an account with a brokerage or an exchange. Please note, however, that most exchanges will require you to go through the KYC verification first.
Best Way to Trade Bitcoin Futures
You can trade Bitcoin futures contracts on either cryptocurrency exchanges or brokerages. Both have their pros and cons, but the biggest advantage of crypto exchanges is that they let you use other cryptocurrencies as a margin.
Ultimately it is up to you to choose what platform you want to trade Bitcoin futures on – just make sure it is reliable and secure. However, if you’re new to futures trading, we recommend you to use a beginner-friendly platform like Changelly PRO. That way, you will be able to focus on learning how to trade Bitcoin futures without having to get distracted by a complicated user interface or features you don’t need at the moment.
Tips for BTC Futures Trading
Firstly, here are some general trading tips. Although we’ve mentioned most of these tips in some of our previous articles, they bear repeating.
- Don’t let your emotions take control of you. Oftentimes people that have made a loss get fired up and attempt to get their money back by trading more: don’t do this. The angrier and/or more desperate you are, the worse the positions you enter will end up being.
- Trade with a clear head, and if you feel like you’re getting tired or frustrated, take a break – an hour, a day, or even a month, however long it takes for you to be in the right state of mind again.
- Money isn’t going anywhere. Lots of crypto traders share their successful trades online, and it can be hard to not be affected by FOMO in that atmosphere. Understand that you’re going at your own pace – and that you’ll get more profit even if you earn less money trading but lose less by not making risking emotional trades.
- Have a savings account/a rainy day fund that you absolutely cannot touch.
- Practice with small amounts first to get a feel for the market.
Now, here are some more Bitcoin futures trading-specific tips:
- Learn more about technical analysis, especially about support and resistance and how they are identified. Support is the point at which a price downtrend usually slows down and comes to a halt. Resistance is the opposite – it’s the point at which the price of an asset starts to meet pressure and cannot rise any further.
- If the market is booming and there’s a definite uptrend, you can put a long order once the price of an asset reaches its current support level.
- If the market is in a downtrend, you can enter a short position once the price of an asset approaches its resistance level.
Can I trade crypto futures in the US?
Yes, you can trade Bitcoin futures in the US. However, you will need to find an exchange that works with US residents, as not all of them do.
In fact, the second-biggest bank in the US, Bank of America, has recently allowed select clients to trade Bitcoin futures. Although most crypto community members dislike banks, this is still amazing news – it is another step towards possible future mass adoption.
Can you day trade Bitcoin futures?
Day trading is an act of closing your position on the same day that you opened it. Yes, it is possible to day trade Bitcoin futures.
How do you trade futures?
- Open a trading account on a crypto exchange or get a brokerage account
- Verify your account
- Go to the Futures tab on your exchange
- Add margin
- Create a long or short position
The most important step, however, is to learn more about the asset you’re planning to trade and do research on it.
Good luck on your trading journey!
Disclaimer: Please note that the contents of this article are not financial advice. This article should not be considered as offering trading recommendations. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor should research multiple viewpoints and be familiar with all local regulations before committing to an investment.
Have you ever been buying and selling crypto for some time now and wish to improve your expertise? Do you suppose you’re able to take the subsequent step and stage up as a crypto dealer? Effectively, meet crypto futures contracts!
Futures buying and selling is a sophisticated buying and selling exercise. If phrases like margin buying and selling, shorting, and cease loss orders imply nothing to you, we recommend you learn our newbie buying and selling guides first. Click on on the time period you wish to study extra about to see a related information.
Futures Contracts: Necessities
Futures have at all times been an important a part of the buying and selling world – in any case, they’ve existed for lots of of years. To place it merely, they’re a authorized settlement to purchase or promote a sure asset at a set value at a predetermined time sooner or later.
Right here’s an instance: think about you personal a flower store, and certainly one of your largest sellers is tulip bouquets, most of that are provided to you by your contact within the Netherlands. These days, due to local weather change and the irregular climate situations it causes, the provision of tulips has been dwindling – and you might be afraid that their value will rise.
So, to safeguard your self in opposition to a potential main future loss, you enter right into a futures contract along with your tulip provider: one yr from now, you’ll purchase tulips from him at at present’s market value. In fact, tulips can develop into cheaper as a substitute – in any case, no one can predict what’s going to occur. You should still lose cash – however there’s an enormous likelihood you’re going to make a revenue as a substitute.
Having the ability to predict future outcomes and understanding what dangers to take (shopping for/promoting at a predetermined value vs. on the future market value) is crucial to understanding commerce Bitcoin futures contracts efficiently.
Please observe that the contents of this text should not monetary or funding recommendation. Do your personal analysis earlier than investing in any asset.
What Are Futures in Crypto?
In fact, futures contracts in each common and crypto buying and selling are barely totally different from the one we’ve described in our tulip instance. Though they’re additionally generally to hedge (restrict) prices, futures in buying and selling are often aimed toward incomes revenue through hypothesis on a future value of an asset.
That contract permits you to mainly lock in a value of an asset, which in our case is Bitcoin, and profit from its future value actions it doesn’t matter what they’re.
How Does Bitcoin Futures Buying and selling Work?
Listed here are some issues you should know to know how Bitcoin futures contracts work.
Simply because the title suggests, an entry level is how you start (enter) a commerce. There are two most important methods to do it:
- Lengthy (an settlement to purchase an asset at X value on Y date)
- Quick (an settlement to promote an asset at X value on Y date)
Lengthy positions are thought-about to be in opposition to the market – you get revenue when the underlying asset’s value goes up. Let’s say you purchase a Bitcoin futures contract that states you’ll purchase 1 BTC in a single week for $30k. Throughout that week, Bitcoin experiences a value surge and is now price $40k as a substitute – so you purchase it for $30k as per your contract after which promote it for $40k, incomes $10k revenue. Please observe that this can be a very simplistic rationalization – but it surely ought to offer you an thought of why and when to open lengthy positions on the Bitcoin futures market.
Quick positions are, naturally, the exact opposite of lengthy ones. You get revenue when the underlying asset’s value goes down. You enter a futures contract to promote an asset at a excessive value specified within the contract for subsequent repurchase at a lower cost.
You may learn an in-depth description of what leverage is right here. In brief, it permits you to open a futures BTC place at a fraction of a price of an precise Bitcoin.
Margin is the quantity of collateral you should have in your account with a view to really commerce Bitcoin futures. The upper the quantity of the commerce, the more cash you’ll have to deposit to your buying and selling account.
There are two forms of Bitcoin futures contracts: perpetual ones and ones which have an expiration date. As soon as a futures contract reaches its expiration date, it will get settled, and the dealer’s account both will get credited or debited relying on whether or not there’s a revenue or loss.
Liquidation occurs when the present market value of the underlying asset reaches the established liquidation value. A part of the dealer’s margin collateral will likely be used to aim to cowl the loss, and if there’s a surplus left, it will likely be returned to the dealer.
Settlement is what the dealer is given/has to offer as soon as a futures contract is settled. Usually, money settlement is used, which means that no alternate of the underlying asset really takes place.
Perpetual Futures Buying and selling
A perpetual futures contract is one which doesn’t have an expiration date.
The place Can You Commerce Bitcoin Futures?
Bitcoin futures will be traded on not solely crypto exchanges however common ones, too. Not all exchanges supply this function, nonetheless, and a few of them don’t enable crypto futures buying and selling for residents of sure nations, so make certain to test the platform’s FAQ and Phrases of Use to see whether or not you’re legally allowed to commerce Bitcoin futures contracts on it or not.
Execs and Cons of Buying and selling Bitcoin Futures
Futures buying and selling is extraordinarily dangerous even for comparatively non-volatile property, so, naturally, it’s extraordinarily extraordinarily dangerous with regards to crypto and Bitcoin. Regardless of this (or, in some circumstances, due to this), many customers nonetheless select to commerce Bitcoin futures.
- The largest good thing about buying and selling Bitcoin futures comes from the age-old notion “the upper the chance, the upper the reward”;
- The excessive leverage on the Bitcoin futures market permits merchants to have much less preliminary capital to have huge income;
- The power to profit from a coin’s value actions with out having to carry it, thus risking shedding your keys, having your pockets hacked, and so forth;
- Bitcoin futures contracts also can assist to mitigate the chance of sudden value crashes and excessive value volatility;
- With Bitcoin futures contracts, you possibly can guess in opposition to the market and profit from each value decline and improve.
- The danger is extraordinarily excessive each due to the character of the crypto market and the excessive leverage;
- The crypto market is very unstable, so opening long-term Bitcoin futures positions is extraordinarily dangerous.
Do I Want a Digital Pockets or a Dealer to Commerce Bitcoin Futures?
You don’t want a crypto pockets to commerce Bitcoin futures contracts in case your cryptocurrency alternate or dealer affords money settlement since no precise Bitcoin is exchanged through the transaction. The one factor you should begin buying and selling Bitcoin futures is to arrange an account with a brokerage or an alternate. Please observe, nonetheless, that almost all exchanges would require you to undergo the KYC verification first.
Finest Technique to Commerce Bitcoin Futures
You may commerce Bitcoin futures contracts on both cryptocurrency exchanges or brokerages. Each have their professionals and cons, however the largest benefit of crypto exchanges is that they allow you to use different cryptocurrencies as a margin.
Finally it’s as much as you to decide on what platform you wish to commerce Bitcoin futures on – simply make certain it’s dependable and safe. Nevertheless, in case you’re new to futures buying and selling, we advocate you to make use of a beginner-friendly platform like Changelly PRO. That means, it is possible for you to to concentrate on studying commerce Bitcoin futures with out having to get distracted by a sophisticated person interface or options you don’t want in the intervening time.
Suggestions for BTC Futures Buying and selling
Firstly, listed here are some basic buying and selling suggestions. Though we’ve talked about most of the following tips in a few of our earlier articles, they bear repeating.
- Don’t let your feelings take management of you. Oftentimes people who have made a loss get fired up and try and get their a reimbursement by buying and selling extra: don’t do that. The angrier and/or extra determined you might be, the more severe the positions you enter will find yourself being.
- Commerce with a transparent head, and in case you really feel such as you’re getting drained or annoyed, take a break – an hour, a day, or perhaps a month, nonetheless lengthy it takes so that you can be in the best way of thinking once more.
- Cash isn’t going wherever. Plenty of crypto merchants share their profitable trades on-line, and it may be laborious to not be affected by FOMO in that ambiance. Perceive that you simply’re going at your personal tempo – and that you simply’ll get extra revenue even in case you earn much less cash buying and selling however lose much less by not making risking emotional trades.
- Have a financial savings account/a wet day fund that you simply completely can not contact.
- Apply with small quantities first to get a really feel for the market.
Now, listed here are some extra Bitcoin futures trading-specific suggestions:
- Study extra about technical evaluation, particularly about assist and resistance and the way they’re recognized. Assist is the purpose at which a value downtrend often slows down and involves a halt. Resistance is the alternative – it’s the purpose at which the value of an asset begins to fulfill stress and can’t rise any additional.
- If the market is booming and there’s a particular uptrend, you possibly can put a protracted order as soon as the value of an asset reaches its present assist stage.
- If the market is in a downtrend, you possibly can enter a brief place as soon as the value of an asset approaches its resistance stage.
Can I commerce crypto futures within the US?
Sure, you possibly can commerce Bitcoin futures within the US. Nevertheless, you will want to search out an alternate that works with US residents, as not all of them do.
In truth, the second-biggest financial institution within the US, Financial institution of America, has not too long ago allowed choose shoppers to commerce Bitcoin futures. Though most crypto group members dislike banks, that is nonetheless superb information – it’s one other step in direction of potential future mass adoption.
Are you able to day commerce Bitcoin futures?
Day buying and selling is an act of closing your place on the identical day that you simply opened it. Sure, it’s potential to day commerce Bitcoin futures.
How do you commerce futures?
- Open a buying and selling account on a crypto alternate or get a brokerage account
- Confirm your account
- Go to the Futures tab in your alternate
- Add margin
- Create a protracted or brief place
A very powerful step, nonetheless, is to study extra concerning the asset you’re planning to commerce and do analysis on it.
Good luck in your buying and selling journey!
Disclaimer: Please observe that the contents of this text should not monetary recommendation. This text shouldn’t be thought-about as providing buying and selling suggestions. The cryptocurrency market suffers from excessive volatility and occasional arbitrary actions. Any investor ought to analysis a number of viewpoints and be accustomed to all native laws earlier than committing to an funding.