Cryptocurrency futures trading is a form of derivatives trading, in which traders enter the contract with the promise to buy or sell a digital currency at a specific price at an established time in the future. Instead of trading spot, where the digital token is exchanged immediately, futures trading revolves around contracts that track the price of the cryptocurrency, allowing traders to gamble on price moves without owning the actual asset.
Cryptocurrency futures has been getting traction owing to its ability to offer larger returns through leverage, which means traders can hold more positions than their capital allows. It’s popular for hedging, speculating, and mitigating risk in the wild crypto market.
Types of futures contracts
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Perpetual futures: These contracts do not have an expiration date, allowing traders to hold positions indefinitely. Popular among cryptocurrency traders due to flexibility and continuous funding fees to maintain positions.
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Fixed-term futures: These contracts expire on a certain future date, such as weekly, monthly or quarterly futures contracts.
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Inverted futures: The underlying asset (e.g., BTC) is used as the settlement currency instead of stablecoins.
Advantages of futures trading
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Leverage: Amplifies potential profits by allowing traders to control large positions with minimal capital.
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Shorting: Traders can make money when the cryptocurrency price is decreasing, by establishing short positions.
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No ownership required: Traders can speculate on price movements without owning the actual cryptocurrency.
Risks of futures trading
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Volatility: Prices are highly volatile prompting the chance of liquidation, particularly when using high leverage.
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Complexity: Trading of futures is a risky and complicated job.
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Funding fees: Traders who hold on to perpetual futures will have to pay funding fees that are calculated based on the market and this may eat back on gains.
Crypto Exchanges Supporting Futures Trading
- OKX (OKX is user-focused first and foremost. They relied on maximum convenience and speed of the exchange, and OKX does this very well. In addition, OKX has its own and very convenient decentralized wallet to store tokens securely.).
- CEX.io (CEX.io is a cryptocurrency exchange founded in 2013 and known for holding licenses to operate in regions where they are difficult to obtain. This demonstrates that the exchange is reliable and operates within the legal framework even in complex jurisdictions, providing users with optimal conditions for interacting with cryptocurrency.).
Cryptocurrency futures trading represents enormous profit opportunities, especially in a bear market. That said, futures trading in particular represents a level of risk (especially on margin) that should not be underestimated, and can only be done effectively within the context of a well-informed and disciplined strategy. It can be a powerful tool in the crypto market for those willing to wade its complexity.
