Beginners Guide To Futures Trading

As Bitcoin and Ethereum become more well-known and sought-after, the number of new enthusiasts trying to dive into trading rises. Some only trade cryptocurrencies (buy or sell directly in an asset), while others want to gain more from changes in market price. Although there are various ways to affect cryptocurrency, futures trading is one of the most well-liked and practical approaches.

What are cryptocurrency futures?

Numerous traders wonder what is trading futures. Traders may access digital currencies using cryptocurrency futures without holding a physical asset. When an investor accepts the risks associated with the value of the cryptocurrency, the instrument is comparable to stock indexes or futures contracts for commodities.

The key benefit of trading cryptocurrency futures is the ability to hedge against adverse price swings and high volatility of cryptocurrencies, including Bitcoin and Ether. Due to the significant fluctuations of digital currencies, traders can purchase assets at bargain prices and sell them when their value increases, and vice versa.

How does futures trading work?

It is vital to know what is futures trading. You wouldn’t notice a difference between conventional trading and trading in cryptocurrency futures if you observed the process on a cryptocurrency exchange like WhiteBIT. It is mainly because traders in both scenarios apply the appropriate risk management strategies while trading long and short.

Yet because futures contracts only deal with the price movement of the underlying product, they significantly differ from spot trading. First, trading in crypto futures does not entail purchasing, disposing of, or holding directly any cryptocurrency assets. Instead, a contract that represents the value of a cryptocurrency at a particular future date is purchased or sold.

Investors can make predictions about a cryptocurrency’s future worth using cryptocurrency futures. Participants can start a long position, betting on a rise in price, or a short position, betting on a decrease in price. Moreover, futures are far more supple and manageable without a physical asset. Also, they permit high-leverage margin trading. 

Characteristics of futures

During its existence, futures trading has developed its distinctive traits, the majority of which come from the nature of the futures contract itself:

• It’s urgent on the futures market. The contract typically has a three-month validity period during which the trader can purchase and sell to maximize earnings.
• To purchase a futures contract, you must pay the collateral’s value, typically 10% of the purchase price. As a result, even with a bit of investment, it is feasible to trade on the stock exchange actively.
• The daily variation in the futures price is known as the variation margin. The difference is deducted daily from the owner’s account, depending on it.
• The futures market is substantially more significant than the markets for stocks and currencies because it offers leverage in a different format. And this opens up the option of carrying out a significantly higher volume of transactions at once.
• Futures are among the most dependable financial products since they have a tightly regulated document form and a guarantee of fulfilling contractual commitments.

Due to the high degree of leverage and the lack of a requirement to pay the entire item cost, the futures market is particularly alluring since you may profit from it even with a modest amount of cash.

Futures trading principles

When you start your journey in trading, it is crucial to comprehend how to trade futures. An overview of the fundamental rules for crypto futures trading may be helpful for novices who are just starting:

• Trading involves good technical analysis forecasts.
• Fundamental analysis plays a secondary function.
• A trader is frequently forced to sign many contracts due to the modest margins on each deal. It is not worthwhile to pursue ultimate gains since, in the event of a prolonged decline of at least one position, the margin may consume the whole amount in the account, resulting in an early transaction closure and loss mitigation.
• It is vital to plan each position’s size carefully, as well as the maximum degree of risk and loss.
• Experts advise beginning trading with highly liquid assets. Futures trading involves compulsory training, with skills being sharpened on a demo account. It will enable you to get at ease in the market and become familiar with its workings without suffering any financial loss.
• Remember to choose the trading terminal that is most convenient for you and offers the most tools and information.

Overall, futures trading offers traders limitless earning potential because they may bet on price growth and decline.

Risks

Due to the peculiarities of futures, investors risk their own money while trading on reputable exchanges. It is challenging to determine the profitability of a particular deal in the absence of expertise and knowledge since these assets are unstable from a financial standpoint.

Working with dishonest vendors and fly-by-night businesses poses additional risks. It is essential to remember that futures are a component of the financial stock market before you entrust your money and begin purchasing them.

Wrapping up

The desire to trade futures is widespread today. Understanding the fundamentals of futures markets can help you succeed in this field. If you have the necessary expertise and a risk-management plan to minimize losses, futures trading may be rewarding. Thus, you must create such a strategy and carefully study and comprehend the advantages and disadvantages of this tool before diving into this activity.

Also, Read This: 5 Benefits of Using an F&O Screener While Trading Derivatives