Futures trading involves traders speculating on the future price of an asset through contracts.
Futures offer leverage, which amplifies both profits and losses in futures trading.
Futures trading offers high liquidity and access to a wide range of assets.
However, understanding complex financial concepts is necessary for successful futures trading.
Popular crypto exchanges to trade futures include Binance, ByBit, OKX, and Bitget.
One of the many reasons why the crypto market is so attractive to investors is its many offerings.
The market offers several asset classes, trading styles, and general ways to make money, one of which is Futures Trading.
Futures trading is a popular choice among crypto traders and can offer great rewards—as long as it is approached with the right attitude and the right risk management strategies.
Whether you’re a beginner or a seasoned investor, understanding what futures trading is can be a great way to approach the market.
Here’s an overview of what this form of trading is, how it works and why it matters.
Futures trading is similar to regular trading. The only difference is that it involves buying and selling market contracts based on the "future price" of an asset.
These contracts, called futures contracts, allow traders to speculate on crypto, stocks, and even commodities like gold or oil.
Futures trades typically have a few key components, including the underlying asset to be traded, the contract size, and the agreed-upon price at which the asset will be bought or sold at the expiration date.
Think of it like a farmer using futures contracts to speculate on the price of their crops at the time of planting.
Traders simply deposit funds into an exchange, place a trade and cash in profits if their bet is successful.
The basic idea is to buy when you believe an asset's price will go up and sell when you think the price will go down.
Everything described so far is similar to spot trades (simply buying and selling for a profit).
However, the major difference between spot and futures trading is that futures trading offers what is known as leverage.
Leverage, as its name implies, allows investors to deposit a fraction of their contract's value and then control a relatively large position.
Here’s an example.
Consider Ethereum, worth around $3,500 at a given time. A leverage of up to 10x can allow a trader to buy an entire Ethereum contract for a relatively small $350.
In essence, if the price of Ethereum were to rally to, say, $5,000, the trader would be poised to make a staggering $1,500 from an initial capital of $350.
It is also worth mentioning that while leverage increases a trader’s earning potential, it can also greatly amplify losses.
Aside from providing amplified losses and gains to traders who prefer a high-risk, high-reward setup for futures trading, futures trades are highly liquid.
This means traders can enter and exit trades instantly without the market moving unexpectedly against them.
Futures contracts also offer exposure to a wide range of assets on any exchange and typically feature dozens, if not hundreds, of tokens.
Futures trading also features trading orders like market stops and limit orders, which allow traders to set pre-defined entry and exit points in the case of flash crashes.
On the flipside, futures trading might require a trader’s understanding of complex financial instruments and market dynamics. This makes it harder for newer and relatively inexperienced traders to get in on the market.
Some of the most popular exchanges for crypto futures trading include Binance, ByBit, OKX and Bitget.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information but will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.