Blockchain technology introduced new financial instruments, cryptocurrencies or else known as digital currencies, into the financial markets.
And with time they are getting better and better and investors/traders are discovering that they are some of the best ways to invest or trade financial markets.
Some of the instruments making headlines within the financial markets are the bitcoin and crypto futures, which are forms of financial derivatives in the world of cryptocurrencies.
What are bitcoin & crypto futures?
A futures contract is a legal agreement (contract) to sell or buy an underlying asset at a predetermined price in the future. Cryptocurrency or crypto futures are therefore futures contracts where the underlying asset that is to be bought or sold at a predetermined price in the future is a cryptocurrency.
The crypto futures is named depending with the type of cryptocurrency involved. For example, if the underlying asset is Bitcoin, the crypto futures is referred to as Bitcoin futures. If the underlying asset is Ethereum, the crypto futures is referred to as Ethereum futures and so on and so on.
To make money with Bitcoin and futures contracts, an investor or trader must look for a bitcoin futures trading platform where the futures contracts are provided for trading.
Crypto Futures Trading Panel on BTCC
Some of the top futures exchanges include BTCC, BitMEX, Ameritrade, Kraken, CME, Huobi, and OKCoin. Each of these exchanges provides traders/investors with different types of crypto futures and thus providing investors with a wide variety of cryptocurrency futures options. Besides the different futures options, they also have different trading terms like maximum leverages and trading fees. Therefore, an investor/trader should be very keen when choosing the futures exchange that they want to use to trade bitcoin and crypto futures.
The most important thing when choosing a crypto futures exchange is to ensure that the exchange offers futures contracts of the cryptocurrency you want to trade. For instance, if you are looking to trade Bitcoin, Litecoin and Ethereum futures, the exchange should have the futures for these cryptocurrencies.
Secondly, the futures exchange should provide the leverage that you want to use for margin trading. This is very crucial since some of the exchanges offer leverage of up to 50X which is relatively low and would certainly limit your profit margins.
BTCC is one of the best among the top-rated crypto futures exchanges. It is a 9-year-old crypto exchange that provides cryptocurrency futures trading where a total of 98 billion USDT contracts being traded in the last 30 days (especially in the Korean bitcoin futures market / 특히 한국 비트 코인 선물 시장에서). It offers futures contracts with a maximum leverage of up to 150X and competitive trading fees.
Understanding the basics of crypto futures trading
In any futures contract, there is always a buyer and a seller. When trading on crypto futures exchanges, the investor and the exchange acts as the two parties involved in the contract. Therefore, there don’t have to be a real buyer on the other end for a trader to open a sell (short) futures position or vice versa.
If an investor/trader opens a short position, the exchange acts as the buyer. On the other hand, if the investor opens a long position, the exchange acts as the seller.
A long position dictates that the trader/investor will be buying the underlying asset when the contract expires (the predetermined timeframe lapses) while a short position dictates that the trader/investor will sell the underlying asset when the contract expires (the predetermined timeframe lapses).
However, since futures contracts are derived financial instruments, the investor does not trade the actual assets but rather their price changes.
Most crypto futures exchanges settle the futures contracts using cash though some also offer a physical settlement. For cash settlement, the trader earns his/her profits/losses in terms of fiat currencies like USD while in physical settlements, the trader earns his/her profits/losses in terms of the actual cryptocurrency involved in the futures contract.
Bitcoin and crypto futures trading strategies
There are two common strategies used in trading bitcoin and crypto futures contracts. These are hedging and trade speculation.
In financial markets, hedging is used to refer to a scenario where two opposite trades are opened at the same time to mitigate the risk of one trade going against the market predictions. In crypto futures, however, hedging is used by investors and traders wishing to sell their cryptocurrencies at a predetermined price regardless of the market price of that cryptocurrency at that particular time. That way, the trader/investor is assured that no matter what happens to the market, he will end up selling his or her cryptocurrency asset at a set price.
The trader/investor will however have to convert his/her cryptocurrency assets into fiat or USD tether as appropriate depending on the form of deposit required by the futures exchange trading account. Once converted, the investor can then open a crypto futures contract worth the amount he/she wishes to dispose of.
For example, if the price of Bitcoin is $10,000 and the investor wishes to sell one Bitcoin, he/she could sell 10,000 Bitcoin futures (each worth $1). That way, the investor is assured that his/her bitcoins will be sold for $10,000 regardless of the market price fluctuations. If the market price of Bitcoin drops to $9,000 the trader will end up selling his bitcoin at a higher price than the market price and thus make a profit of $1,000. On the other hand, if the market price rises to $12,000, the trader will end up selling his bitcoin at a price lower than the market price thus making a loss of $2,000. But in both cases, the trader has sold his bitcoin at a predetermined price which litigates the risks of price fluctuations.
This is the most common way of trading crypto futures. Traders speculate market price movements and open long and short positions accordingly.
In case of a long position, the trader makes profit when the market price of the underlying asset rises while in case of a short position, the trader makes profit when the market price of the underlying position drops. The logic is similar to that of hedging explained in the example above with the only difference being that in trade speculation the trader makes some market analysis to predict which direction the market prices will move before the contract expires while in hedging no market price prediction is done.
BONUS: Up to 2,000 USDT deposit bonus for new users is now available on BTCC crypto futures trading platform.