A cryptocurrency trading strategy will help you get the maximum income and reduce risks. It is a plan whereby you open positions at the most appropriate time. There are a vast number of trading options. Now we will figure out what are futures in crypto, the risks and benefits, and which is suitable for this way of trading virtual assets.
What is Futures Trading
Futures trading is the trading of assets using contracts. Investor and broker sign a deal. According to her, the investor undertakes to buy cryptocurrency at a specified price for a limited time. To confirm the seriousness of intentions, the buyer must pay a margin. It is a certain percentage of the transaction that remains with the lender.
Crypto futures trading is a kind of verification of the intuition and analytical skills of the investor. The cryptocurrency market is quite unstable, and the buyer needs to predict the currency’s value at the time until the contract is agreed upon. The deal is signed for several days. It is also possible to conclude a contract for various years.
The investor must redeem the asset, regardless of what happens to its value. The price may drop significantly, and the contract indicates a high cost. You need to pay the amount agreed upon. Otherwise, the lender may cancel the contract and freeze the buyer’s futures accounts.
How Futures Trading Differs from Other Types of Trading
The main difference between futures crypto and other strategies is that trading is not based on the current market price. When you conclude a contract, you can use the rate for the day to analyze the market movement. But the price will be different at the time of the asset exchange.
The second distinguishing point is that trading does not take place instantly. With spot trading, an investor buys a cryptocurrency, and after a while, the tokens are already in his account. In futures trading, virtual assets are credited on the specified date.
When dealing with the question of what crypto futures are, it is worth understanding that trading does not take place on the market. The investor and the broker sign the contract. That is, there are no intermediaries or third parties.
Futures: Advantages and Disadvantages
The main advantage of futures is that you do not need to pay the total cost of cryptocurrency to trade. It gives investors access to virtual assets without a significant investment. You only need to pay a small percentage when signing the contract.
Futures trading allows you to operate with more significant amounts than the investor has on his account. It is an excellent opportunity to expand your cryptocurrency portfolio without sending large quantities to an electronic wallet.
This strategy does not require constant attention. If you have chosen a long contract, you only need to deposit funds on the specified date. After that, there is no need to constantly monitor the market and closely monitor the value of the virtual asset.
You can sell the futures contract. If you understand that you cannot fulfill your obligations to the creditor, the contract can be put up for auction. In this case, you will lose a small amount but get rid of a deal you cannot afford.
Among the disadvantages of futures trading, it is worth highlighting:
- access to a few assets;
- the probability of losing savings due to the unpredictability of the market.
Futures trading is possible only with those assets offered by the lender. If you decide to diversify the list of investments with a new cryptocurrency, you should clarify whether this is possible.
Trading futures is always a risk. It should be understood that the market can change dramatically, and the rate can suddenly fall. As a result, you will buy coins that are worth little at a high price.
Who Should Use Futures Trading
Now that you know what is the futures of crypto trading, you can start the process. To get the maximum benefit, you need to analyze the market carefully and the selected asset’s trends. This strategy requires a careful study of the exchange rate and buyers’ demand. The global forecast will help you conclude a profitable contract.
Futures trading suits more experienced traders already familiar with the cryptocurrency market. The strategy is used to ensure the investment portfolio and reduce possible risks in the future.