How Does the Futures Market Crypto Work?

Trading crypto futures is a financial tool for advanced crypto investors. A beginner trader is not likely to cope with this instrument, for it requires thorough knowledge of the market and the ability to predict its movements. In traditional markets, futures are contracts on commodities such as precious metals, oil, grains, gas, etc. In crypto futures trading, the underlying assets are digital coins. Since this market is very unstable, having a correct approach, traders earn enormous amounts of money using this tool. However, with the same success, many people lose all their funds when making incorrect price forecasts. Let’s see how crypto futures work.

Futures Work Principle

Source: seekingalpha.com

Like with traditional markets, the main is to predict the price of the asset. For that purpose, traders conduct in-depth research of the asset and the factors that affect its value:

  • technical analysis contains price charts investigation and finding historical indicators and patterns that become a base for assessment of possible future price movements.
  • fundamental research concerns all the external factors that push the crypto market up and down. Of course, it is connected with the world’s economy, inflation, etc.

Evaluating the market requires a lot of experience, so this task might seem somewhat challenging for a novice trader.

How does it work?

There are two scenarios:

  1. You think the coin’s value will increase and plan to sell it at a higher price to make money. So you go to a crypto futures platform and open the position “in long”. If the value of the asset really increased to the level you thought, you sell coins.
  2. You think the price will drop. Go to a futures platform and create a “short” position. When the day comes, and if the price really reduces, you buy coins at a low rate.

Most futures agreements on crypto platforms have an expiration date (you pick), but there are places where you can trade futures with no end date – perpetual contracts. Such agreements are available on the WhiteBIT crypto platform. In this case, prices of assets are taken from the spot market, and a contract’s participants just pay each other a fee depending on whose position is better (given the present price of an underlying asset). It is very convenient because you don’t have to buy  or sell investments when the market conditions do not develop the way you forecasted.

How to start trading crypto futures

Source: beinsure.com

In order to start, you will need to find a reputable exchange that offers this type of trading. Once you have found an exchange, you will need to create an account and deposit funds into it. After your account is funded, you can then begin trading crypto futures.

It is important to note that the cryptocurrency futures market is a highly volatile one. As such, it is important to approach it with caution and to always trade with stop-losses in place.

Conclusion

As you can see, the futures market of crypto trading is a complex yet powerful tool for experienced traders. By understanding its inner workings, one could significantly increase their success with this medium. With this knowledge, and proper caution when entering into any trades in the future markets, traders should have a good chance of making sound decisions to ensure maximum profits on their investments.

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