Cryptocurrency Futures: A Comprehensive Guide

  • The history, varieties, trading approaches, and trading venues of cryptocurrency futures are all covered in this detailed overview. 
  • The numerous contract types, the history of bitcoin futures, and key trading tactics for this competitive market will all be revealed to traders.

The future prices of digital assets may now be predicted by traders thanks to the prominence of cryptocurrency futures in the crypto trading environment. This article will dig into the world of bitcoin futures in this thorough tutorial, learning about their sorts, trading methods, and trading venues.

Understanding Futures On Cryptocurrency

With the help of a cryptocurrency futures contract, traders may purchase or sell a certain quantity of digital assets at a defined price and future date. With futures contracts, a user may benefit from both increasing and falling prices without having to retain the underlying asset, in contrast to spot trading, where they do.

Futures On Cryptocurrency: History

Compared to typical futures markets, the history of cryptocurrency futures is quite recent. When Bitcoin futures were established by the Chicago Mercantile Exchange (CME) towards the end of 2017, they became popular. This was a pivotal event for the cryptocurrency market since it opened the door for institutional investors to participate and engage in price-movement speculation on Bitcoin.

Futures trading has its roots in ancient Japan when rice futures were utilized to protect against price swings. However, the necessity to control agricultural price risks was principally responsible for the development of modern futures markets, as everyone knows them today, in Chicago in the middle of the 19th century.

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Types Of Futures Contracts For Cryptocurrency

Standard and perpetual cryptocurrency futures contracts are the two main types available.

  • Contracts for Standard Futures

These contracts have a predetermined expiration date. When a contract expires, it is resolved, and all parties involved are responsible for fulfilling their commitments. Standard futures have two settlement options: deliverables or cash.

  • Deliverable Futures

Upon contract expiration, these involve the actual delivery of the underlying asset. The asset must be delivered or accepted by traders at the agreed-upon price and time.

  • Futures With a Cash Settlement

In these contracts, the asset is not delivered. Instead, the settlement of the contract is determined by the discrepancy between the contract’s price and the asset’s market value on the day it expires.

  • Futures Contracts 

Future contracts with a perpetual life span, on the other hand, have no time limit. These contracts can be held by traders indefinitely. They are common in the cryptocurrency market and are regularly resolved, sometimes every eight hours, according to the financing rate.

  • Funding Rate

In perpetual contracts, the funding rate is a technique that makes sure the contract price closely mirrors the spot market price. Depending on the price difference between the contract and the underlying asset, it entails regular payments between long and short traders.

Trading Techniques And Risk Control

Risk management and cautious preparation are necessary while trading bitcoin futures. The following are some crucial tactics for risk management:

  • Select the Trading Approach

Choose a trading strategy, such as day trading, swing trading, or long-term investing. Make a trading strategy including entry and exit locations, position sizing, and risk control guidelines.

  • Set take-profit and stop-loss orders
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Use take-profit orders to lock in gains and stop-loss orders to reduce future losses. These orders aid in trading automation and lessen irrational choices.

  • Managing leverage 

It is important since it may increase benefits and losses. Utilize leverage sensibly and guard against capital overexposure. Recognize the dangers of using excessive leverage.

  • Diversify the Portfolio

Refrain from investing all of a user’s money in one investment or item. Diversification helps reduce risk and safeguard their assets.

  • Keep up with market news and trends to stay informed

Because of the high level of volatility in the cryptocurrency markets, a user can improve their trading selections by staying informed.

Where To Trade Futures On Cryptocurrencies

There are several platforms and exchanges for cryptocurrencies where futures contracts may be traded. WhiteBIT, a well-known European bitcoin exchange that provides futures trading with leverage up to 100x, is one such platform. It offers a simple user interface and a protected trading environment.

In conclusion, bitcoin futures contracts have developed into a crucial component of the ecosystem around cryptocurrency trading, providing chances for financial gain and risk management. Traders may confidently traverse the world of bitcoin futures by being aware of the various contract types, using successful trading methods, and engaging in sound risk management. It’s important to trade properly and within the risk tolerance because trading entails dangers.

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