Crypto Futures Trading

If you heard about “Crypto Futures Trading” and wish to learn everything about it, this is for you.

Crypto Futures Trading
Crypto Futures Trading, Image by pvproductions on Freepik

What is Crypto Futures Trading?

Crypto futures trading refers to the act of speculating on the future price of a cryptocurrency through a derivative contract.
In these contracts, buyers agree to purchase or sell an underlying asset, such as Bitcoin, or ETH at a predetermined price and date in the future.

It allows for leverage, allowing traders to potentially profit from both rising and falling prices. It is an advanced trading strategy and requires a good understanding of the market and the underlying asset being traded.

Benefits of Futures Trading to Traders

Leverage: Trading crypto futures allows traders to control large positions with a relatively small amount of capital, as they can use leverage to magnify their returns. “Leverage is achieved by borrowing funds from a broker”
For example; if a trader uses 50x leverage, he can trade a position worth 50 times their account balance.

Hedging: Crypto futures can be used to hedge against market volatility, as traders can take both long and short positions, and protect against market downturns.

Liquidity: Crypto futures are often highly liquid markets, allowing traders to enter and exit positions quickly and efficiently.

Access to price discovery: Futures trading provides a transparent, centralized platform for price discovery, allowing traders to see the market’s consensus view on the value of a particular asset.

24/7 trading: Crypto futures can be traded 24/7, allowing traders to respond to market developments and opportunities in the market.

Lower costs: Compared to traditional assets, the cost of trading futures is generally lower, making it accessible to a wider range of traders. (Including traders with lower funds)

Having known the benefits, are there risks Involved in it?

Yes, there is. Let’s look into them.

Risk Involved in Trading Crypto Futures

Leverage risk: Crypto futures trading often involves the use of leverage, which magnifies both gains and losses. This means that traders can lose more than their initial investment if the market moves against them.

Market risk: Crypto futures are subject to market risk, as the value of an asset can change rapidly and unpredictably, leading to substantial losses for traders.

Liquidity risk: In some cases, the crypto futures market can become illiquid, making it difficult for traders to enter or exit positions. This also has to do with volatility (the rate at which the price of assets increases or decreases over time)

Counterparty risk: When trading crypto futures, traders must trust the counterparty to fulfill their obligations in the event of a profitable trade.

Are there measures to put in place to be able to control these risks? We shall find out soon.

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Uzoamaka Favour Onyemachi
Uzoamaka Favour Onyemachi, a Blockchain Professional graduate of Althash University(CSc), Content Creator, Technical Researcher, Cryptocurrency Analyst and Trader.