Disclaimer: Crypto currencies and Crypto products can be extremely volatile and trading crypto products can cause significant loss. This article does not necessarily asks users to invest in crypto products and is for educational purposes only. Always conduct market research and gather related information before investing in Cryptocurrencies.
What is Crypto Futures Trading?
Futures trading in crypto market is a type of trading where you speculate on the future price of a cryptocurrency rather than buying the actual asset. Here's how it works:
Basic terms in Futures Trading:
1. Contracts: You trade contracts that represent a cryptocurrency, not the actual coins.
2. Long or Short:
Long: You bet the price will go up.
Short: You bet the price will go down.
3. Leverage: You can borrow funds to open a larger position than your actual capital (e.g., 10x leverage means $100 becomes $1,000 in buying power).
4. Expiration: Some futures contracts have an expiration date; others (like perpetual futures) do not.
5. Margin: You need to keep a certain amount (margin) in your account to maintain the position. If the market moves against you too much, you can get liquidated (lose your margin).
Let's Understand with an Example:
The image above is example of a profitable trade. Trader opened a Long position for $ALCH at 0.05879 and sold at 0.06982 making $14.36 in profits. This would have been a loss making trade if trader would have opened a Short position at the same price causing him to lose $14.36.
It's must to remember that Trading Future contracts comes with very high risk and traders could potentially loose all their capital if handled irresponsibely. Such as Emotional trading, FOMO trading etc.
Here's a simplified example of a Futures Trade:
Scenario: You go Long on Bitcoin Futures
You believe BTC will go up.
Current price: $30,000
Leverage used: 10x
Your capital (margin): $100
Position size: $100 × 10 = $1,000
If BTC goes UP by 10%
New BTC price: $33,000
Profit: 10% of $1,000 = $100 profit
Total: You now have $200 (your $100 margin + $100 profit)
Return: 100% profit #
If BTC goes DOWN by 10%
New BTC price: $27,000
Loss: 10% of $1,000 = $100 loss
You lose your entire margin of $100
This is called liquidation.
With this Let's end the basics of Futures Trading. Now you're able to excute your first trade.
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