An Insight into Futures Trading
When it comes to trading financial assets, there are two major trading markets; the spot market and the futures market.
In the spot market, financial assets are traded immediately and the transaction is carried out at the discretion of the holder. In futures, the transaction is settled at a later date.
You have to buy or sell the agreed financial asset at a predetermined price on a due date. If you are believer in bigger risk, bigger reward, then futures trading might just be for you.
Cryptocurrency (like all other financial assets) can be traded in the futures market and we want to take a look at that in this article.
What is futures trading?
Futures trading is the buying/selling of a contract that stipulates the parameters for the sale of a particular financial asset on a future date.
When you buy or sell cryptocurrency or any other financial asset in the spot market, that asset is traded at its current market value.
However, when you buy the same financial asset in futures market, you don’t immediately receive the value of that asset. Let’s illustrate with an example.
Suppose the current value of bitcoin is 40,000 dollars and you decide to buy it in the spot market, you will pay 40,000 dollars and immediately receive your bitcoin value. If the price increases or decreases, you will bear full responsibility. Futures trading is different.
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If one bitcoin is currently valued at 40,000 dollars today and you are convinced the price will hit 60,000 in the next one month, you can enter a futures contract where you agree to pay about 45,000 dollars at the expiration of a month.
On the opposite end of that contract is a seller that believes bitcoin will either retain its 40,000-dollar value or go lower within the same period.
After both parties agree to this agreement, the transaction must take place at the end of one month irrespective of the value of bitcoin.
It doesn’t matter if bitcoin goes to zero or 1,000,000 million dollars because the seller must sell at the agreed price and the buyer must buy at that same price.
A rather new and exciting way of trading has been incorporated into cryptocurrencies. This platforms operation can be automated or controlled manually.
It is found in the Bitcoin Loophole It is a safe and reliable platform that gives you liberty to trade as you please and make enough profits.
Why are the special features of futures trading?
Profitability
Futures trading offers more room for profit than spot trading. Firstly, your result is based on a future event and you don’t carry the risk of any underlying asset along the way.
Furthermore, when you buy a cryptocurrency in the spot market, you can only make money in the bull season.
If you buy during the bear season, you will incur loss unless you are willing to hold till another bull season.
Liquidity
The futures market doesn’t run out of funds. This is because of the number of traders willing to speculate on different cryptocurrencies.
The Bitcoin Futures market alone has a monthly market capitalization of two trillion dollars. This should give you an idea of how much money investors put into futures trading.
You can always find someone with opposing speculation to sit at the other side of your trade, in futures market.
Leverage
Just like the foreign exchange market, the futures market also allows for leveraging. Leveraging is a situation where you employ the capital of external bodies to scale your profit (or loss).
You can buy more crypto assets with less than what is in your balance. You should know that you have to bear the full outcome of your trade if it goes south.
Summary
Futures trading offers many benefits to traders who understand the futures market. For miners, it allows them to secure the future price of their cryptocurrency regardless of the current market conditions.
People can also make a lot of profit (and loss) from futures trading. If you think this type of cryptocurrency trading is for you, we would advise that you avoid over-leveraging and stake only what you are ready to lose.
