Futures contracts on Binance are binding financial contracts that enable traders to buy or sell a digital asset (like cryptocurrencies) at a specified price on a future date. The actual trading of the digital asset does not occur at the moment of the contract; instead, a contractual representation of it is traded, with the possibility of cash settlement at the future settlement date. These contracts are used either to hedge against price volatility or to speculate on future market movements.
How Futures Contracts Work on Binance:
Pre-Agreement:
The purchase or sale price of the digital asset and the execution date in the future are agreed upon.
No Immediate Exchange:
Traders do not directly own the digital asset when opening the contract. Instead, they buy or sell a contract representing that asset.
Future Settlement:
The contract is settled physically on the specified expiration date, where assets or cash value are exchanged.
Hedging and Speculation:
Traders can use futures contracts to hedge their investments against negative price movements (hedging), or to speculate on the rise or fall of the asset price in the future (speculation).
Examples of using futures contracts on Binance:
Buying a "Long" Contract:
When you expect the price of Bitcoin to rise in the future, you can buy a futures contract to buy.
Selling a "Short" Contract:
When you expect the price of Bitcoin to decrease, you can sell a futures contract to buy or enter into a direct selling deal.
Types of Futures Contracts on Binance:
Quarterly Futures:
It has a specific expiration date at the end of each quarter and is settled in cash.
Perpetual Futures:
These contracts do not have an expiration date, allowing the trader to hold them longer at their discretion.