Jessie Connor  January 19, 2022

There are two major trading markets for exchanging financial assets: the spot market and the futures market. Financial assets are traded quickly in the spot market, and the transaction is carried out at the holder’s discretion. The deal in futures is settled at a later date.

You must acquire or sell the agreed-upon financial asset by a certain date at a fixed price. Futures trading may be right for you if you believe that higher risk equals higher gain. We’ll look at how cryptocurrency (like all other financial assets) can be traded on the futures market in this post.

What is futures trading?

Futures trading is the purchase and sale of a contract that specifies the terms for the sale of a certain financial asset at a later period. When you purchase or sell cryptocurrencies or any other financial asset on the spot market, you are paying the current market price for that item. When you buy the same financial instrument in the futures market, however, you do not immediately receive the asset’s value. Let’s have a look at an example.

If the current price of bitcoin is $40,000 and you opt to buy it on the spot market, you will pay $40,000 and receive your bitcoin worth immediately. You will be entirely responsible if the price rises or falls. Futures trading is a unique experience. If one bitcoin is currently worth 40,000 dollars and you believe it will reach 60,000 dollars in the next month, you may enter a futures contract and agree to pay around 45,000 dollars at the end of the month.

A seller on the other side of that contract expects bitcoin will either maintain its 40,000-dollar value or fall in value during the same time period. The transaction must take place at the end of one month after both parties agree to this agreement, regardless of the value of bitcoin. It makes no difference whether bitcoin reaches zero or one billion dollars since the seller must sell at the agreed-upon price and the buyer must buy at the agreed-upon price.

Establish a trade plan

The first piece of advice cannot be overstated: meticulously plan your trades before taking a position. This entails not just a profit target, but also an exit strategy in the event that the trade goes against you.

The idea is to reduce the chances of you having to make critical judgments when you’re already in the market with money on the line. You don’t want fear or greed to dictate your actions by enticing you into holding a losing position for too long or abandoning a lucrative position too soon.

A well-crafted trading strategy that includes risk-management tools like stop-loss orders (discussed below) and bracket orders can help shield you from such mistakes. Assume you purchased one December silver contract at $20.00 per ounce. You might create a stop loss exit at $18.00 per ounce and a profit exit at $25.00 per ounce using a bracket order. You’re seeking to keep your risk to $2 per ounce while retaining a profit possibility of $5 per ounce in this manner.

Why are the special features of futures trading?

Profitability

Futures trading has a larger profit margin than spot trading. To begin with, your outcome is contingent on a future occurrence, and you are not exposed to the risk of any underlying asset along the road. Furthermore, you may only profit from buying a cryptocurrency on the spot market during the bull season. You will lose money if you buy during the bear season unless you are ready to wait until the next bull season.

Liquidity

The money in the futures market never runs out. This is due to the large number of traders interested in speculating on various cryptocurrencies. The monthly market value of the Bitcoin Futures market alone is two trillion dollars.

This should give you a sense of how much money people are willing to invest in futures trading. In the futures market, you can always find someone with opposing speculation to sit on the other side of your transaction.

Leverage

The futures market, like the foreign exchange market, allows for leverage. Leveraging is when you use the capital of other people or companies to increase your profits (or loss). With less money in your account, you can buy more crypto assets. You should be aware that if your deal fails, you will be responsible for the entire loss.

Summary

Futures trading has numerous advantages for traders who are familiar with the futures market. It allows miners to lock in the price of their coin in the future, regardless of market conditions. People can make a lot of money (or lose a lot of money) by trading futures. If you think this form of cryptocurrency trading is right for you, we recommend avoiding over-leveraging and only risking what you’re willing to lose.000000Jessie Connor is an Open Source Research Analyst and Writer from Brisbane. Jessie is Editor-in-Chief at Great ASP website and also a contributor to several business, tech, and lifestyle blogs. She loves yoga, healthy living, and of course – shopping! Share Tweet Share Share ShareShop Related Products

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