Introduction to Futures Trading
Futures trading is the activity of trading futures contracts that promise the purchase or sale of an asset at a certain price in the future. This contract is an agreement between two parties to buy or sell an underlying asset at a predetermined price on a specific date in the future. These underlying assets can be a variety of financial instruments, including commodities, currencies, stock indices, and of course, crypto assets.
How Futures Trading Works:
1. Futures Contracts
In futures trading, instead of buying or selling crypto assets like Bitcoin or Ethereum directly, traders trade contracts that represent claims to buy or sell those assets in the future. This contract lists a specific price and expiration date.
2. Leverage
One of the main features of futures trading is the use of leverage. Leverage allows traders to open positions that are larger than the capital they have. For example, with 10x leverage, a trader can open a $10,000 position with only $1,000 as margin. This can increase potential profits, but also increase potential losses.
3. Long and Short Positions
In futures trading, traders can take long or short positions. A long position is taken if the trader expects the asset price to rise, while a short position is taken if they predict the price will fall. This provides the flexibility to gain profits in both rising and falling markets.
4. Termination of Contract
There are two main ways to settle futures contracts: physically and in cash. In physical settlement, the underlying asset is actually transferred between the parties involved on the expiration date. In cash settlement, the difference between the contract price and the market price on the expiration date is settled in cash.
5. Use of Margins
Margin is an amount of funds that must be deposited in a trader's account to open and maintain a futures position. There are two types of margin: initial margin and maintenance margin. Initial margin is required to open a position, while maintenance margin must be maintained to avoid position liquidation.
6. Risk and Risk Management
Due to leverage, futures trading can be very risky. Small movements in the market can result in big profits or significant losses. Therefore, risk management is very important in futures trading. Traders typically use stop-loss orders and determine prudent position sizes to manage their risk.
Futures trading is becoming increasingly popular among crypto traders because it provides the opportunity to profit from high market volatility, without the need to physically own the underlying asset. However, it is important for beginners to fully understand how futures work and the risks involved before jumping into them.
Why Futures Trading is Appealing to Crypto Traders
Futures trading has become attractive to crypto traders for several reasons:
High Leverage
Leverage allows traders to take positions larger than the capital they have. This can significantly increase profit potential if their price predictions are correct. For example, with 10x leverage, a trader can gain $10,000 exposure with only $1,000 of capital.
Speculation and Quick Profits
The crypto market is known for its high volatility. By trading futures, traders can take advantage of short-term price movements more effectively, both in rising (bullish) and falling (bearish) market conditions.
Hedging
Traders who own crypto assets can use futures contracts to protect the value of their portfolio from sharp price drops. For example, a trader who owns Bitcoin can sell a futures contract to lock in a specific price, reducing the risk of loss from future price drops.
High Liquidity
Futures markets often have high liquidity, allowing traders to enter and exit positions quickly and with relatively low transaction costs.
Strategy Diversification
Futures allow traders to implement a variety of more complex trading strategies, such as spread trading, arbitrage, and long vs short term strategies. This provides more flexibility in their portfolio management.
Access to Global Markets
Futures trading provides access to a variety of global markets that may not be available on the spot market. For example, traders can trade Bitcoin futures contracts on exchanges based in different countries.
Tips for Futures Trading Beginners
Registration and Account Verification on Binance
Steps to Create a Binance Account
1. Visit the Binance Site
To get started, visit the official Binance site at [www.binance.com](https://www.binance.com). Make sure that you visit the correct site to avoid fraud.
2. Register
- Click the "Register" or "Register" button located at the top right of the main page.
- You will be asked to choose a registration method: using email or phone number. Choose the one that is most comfortable for you.
- Enter a valid email address or phone number and create a strong password. Passwords should consist of a combination of uppercase letters, lowercase letters, numbers, and symbols for maximum security.
- After entering the required information, click the "Create Account" button.
3. Verify Email or Telephone Number
- Binance will send a verification code to the email or phone number you registered.
- Enter the verification code you received into the column provided on the Binance site.
4. Agree to the Terms and Conditions
- Read the Binance terms and conditions of use.
- Check the box stating that you agree to the terms and conditions, then click "Submit" or "Submit."
Identity Verification (KYC) Process
1. Log in to Account
After successful registration, log in to your Binance account using the email/phone number and password you created.
2. Access the Verification Page
- On your account's main page, hover over the profile icon in the top right corner and click "Identification" or "Identity Verification."
- You will be directed to the identity verification page.
3. Initiate Identity Verification
- Click the "Start Now" button in the identity verification section.
- Select your country of residence, then click "Continue" or "Continue."
4. **Fill in Personal Information:**
- You will be asked to fill in personal information such as full name, date of birth, and residential address. Make sure the information entered matches the identity document you will upload.
- After filling in personal information, click "Continue" or "Continue."
5. Upload Identity Documents
- Binance will ask you to upload an official identity document such as a passport, KTP, or driver's license. Choose the most accessible documents and ensure the quality of the uploaded images is clear and legible.
- After selecting a document, upload a photo of the front and back of your identity document.
- If requested, also upload a selfie of you holding an identity document to verify that the document is yours.
6. Face Verification
- Some users may be asked to perform facial verification as an additional step. Follow the on-screen instructions to complete the facial verification process.
- Make sure you are in a room with good lighting and that your face is clearly visible on the camera.
7. Waiting for Approval
- After completing all verification steps, click "Submit" or "Submit."
- The verification process usually takes several hours to several days. You will receive a confirmation email after successful verification.
With a registered and verified account on Binance, you are ready to start trading futures. Complete identity verification ensures that your account is secure and compliant with applicable regulations, giving you full access to the full range of trading features offered by Binance.
How to Activate a Futures Account on Binance
1. Login to Binance Account
- Make sure you are logged in to your Binance account.
2. Navigate to Futures
- In the Binance main menu, hover over “Trade” and select “Futures” from the available options. Alternatively, you can directly visit [https://www.binance.com/en/futures/BTC_USDT](https://www.binance.com/en/futures/BTC_USDT) (replace BTC_USDT with the desired trading pair).
3. Futures Account Activation
- If this is your first time using Futures on Binance, you may need to confirm or activate the Futures service first.
- Binance usually requires you to read and agree to the Futures terms and conditions of service before you can proceed.
4. Agree to the Terms
- Read the terms and conditions carefully, then tick the box stating that you agree to the applicable terms and conditions.
5. Start Trading
- After activating your Futures account, you can start exploring the markets and trading according to your preferences.
Difference between USDT-Margined and COIN-Margined Contracts
USDT-Margined Contracts
- Margin Basis: This contract uses Tether (USDT) as the margin basis, which means your margin value is calculated based on the amount of USDT you have in your Futures account.
- Value Stability: Since USDT is a stablecoin whose value is tied to USD, this contract is more stable in its relative value.
- Risk Management: Traders typically use USDT-margined to manage risks related to crypto price fluctuations.
COIN-Margined Contracts
- Margin Basis: This contract uses crypto assets (e.g. BTC, ETH) as the margin basis. The amount of margin required is calculated based on the amount of crypto you hold in your Futures account.
- Value Volatility: Because their value depends on the price of the underlying cryptocurrency, these contracts can experience significant fluctuations in value.
- Flexibility and Profit Potential: COIN-margined contracts provide greater flexibility in position management and higher profit potential, but also carry greater risk due to crypto volatility.
Deposit Funds to Futures Account
How to Deposit USDT or Crypto Assets to a Futures Account on Binance:
1. Login to Binance Account
- Make sure you are logged in to your Binance account.
2. Navigate to Futures Account
- Click "Wallet" and select "Futures" to access your Futures account.
3. Select Deposit
- On the Wallet Futures page, select "Deposit" to start the deposit process.
4. Select the Assets to Fund
- Select the crypto asset or USDT you want to deposit to the Futures account. Make sure you choose the type of asset that fits the contract you want to trade (USDT-margined or COIN-margined).
5. Deposit Address
- Binance will provide an address or QR code to deposit the crypto assets. You can use this address to send assets from other wallets or platforms to Binance.
6. Transaction confirmation
- After sending assets to the address provided, confirm the transaction and wait for the funds to enter your Futures account. The time required for deposits may vary depending on the blockchain and platform terms.
Margin Settings (Cross Margin vs Isolated Margin)
Cross Margin
- Definition: Cross margin allows you to use your entire Futures account balance as margin for all your open positions as a whole.
- Benefits: It provides greater protection against position liquidation as you have greater flexibility in the use of margin to withstand market fluctuations.
Isolated Margin
- Definition: Isolated margin allows you to allocate a certain amount of margin to each open position separately.
- Benefits: This way, you can limit the risk on each individual position without affecting other positions in your account.
The choice between cross margin and isolated margin depends on your preferences and trading strategy. Cross margin is suitable for traders who are looking for greater protection against overall liquidation, while isolated margin is better suited for traders who want to manage risk separately for each of their trading positions.
Futures Trading Strategy in the Crypto Market
Futures trading in the crypto market offers a variety of strategies that traders can use to achieve their goals, from managing risk to maximizing profits. Here are some commonly used strategies:
1. Copy Trading
Copy trading allows traders to copy or follow the trades of other traders who are considered successful. This can be done automatically through the platform or manually by monitoring and copying other traders' trades.
Superiority:
- Follow experienced traders without needing deep knowledge of the market.
- Can increase the probability of trading success.
Disadvantages:
- Risk of failure if the trader being followed experiences a loss.
- Dependence on other people's decisions in portfolio management.
2. Hedging
Hedging involves opening a position opposite to the primary position to protect the value of the portfolio from adverse price fluctuations.
Superiority:
- Reduce the risk of exposure to price fluctuations.
- Can secure a position when the market is unstable.
Disadvantages:
- Additional costs associated with opening a hedging position.
- Requires active monitoring and management.
3. Spread Trading
Spread trading involves buying and selling two correlated futures contracts to take advantage of the price difference (spread) between them.
Superiority:
- Potential profits from small relative price fluctuations.
- Potentially produces consistent results with lower risk.
Disadvantages:
- Requires careful analysis of price differences between two contracts.
- Spreads can change quickly, affecting profit potential.
4. Day Trading
Day trading involves opening and closing positions within a single trading day to take advantage of short-term price movements.
Superiority:
- Potential to take advantage of daily volatility.
- Does not require positions to be held overnight, reducing risks associated with large market changes.
Disadvantages:
- Requires monitoring and fast trade execution.
- Increased risk due to high market volatility.
5. Arbitrage
Arbitrage involves exploiting price differences between two or more markets to gain riskless profits.
Superiority:
- Almost guaranteed profits due to exploitation of small price differences.
- Very low risk or even no risk.
Disadvantages:
- Requires large capital to conduct significant arbitrage.
- Fast execution is necessary to take advantage of small price differences.
Other Strategies
Apart from the strategies above, there are also strategies such as swing trading, scalping, and strategies based on technical or fundamental analysis. The choice of strategy depends on the trader's goals, risk tolerance and market knowledge.
Conclusion
Choosing the right futures trading strategy largely depends on individual preferences, market understanding, and investment goals. Each strategy has its own strengths and weaknesses, and requires appropriate adjustments to market conditions and individual trader conditions. It is important to conduct in-depth research and understand the risks involved before adopting a particular trading strategy in the crypto futures market.
Remember to do your own research (DYOR) to make informed and intelligent investment decisions.