Futures contracts are made between two traders, who agree on the asset’s (or commodity’s) future price (at some exact point of time) and owe to fulfill those agreements by the contract expiration term. That’s each party forecasts the future price of an asset. Such contracts received popularity almost one century ago. Crypto futures trading emerged in 2017 and has become a very popular tool on the majority of crypto exchanges.
So crypto futures are deals made between traders trying to forecast the future price of crypto.
Now that we found out what are futures in crypto, let’s see what services allow this tool.
How Do Crypto Futures Work?
When opening a position on crypto futures, users receive access to cryptocurrency but do not own those assets. This type of trading protects traders against high volatility, no matter if it is futures on Bitcoin or Ethereum. As the digital currency rates change rapidly, dropping one day and skyrocketing on another day, these “price swings” allow traders to purchase them at a low price and sell them when the rate grows and vice versa.
Platforms that allow for crypto futures:
- Binance Futures
- WhiteBIT crypto exchange
Let’s consider an example. Your friend and you opened the BTC futures position at the level of $40000. You opened a position for “long”, and your friend – for “short”. When the period of your deal expired, the asset’s price raised to $45000. In such a case, your friend owes $5000, and you receive $5000 from an exchange in return.
There are also futures without time frames. Such contracts do not imply any exact expiration date. Contracts hold closer to a spot price level, due to the funding mechanisms. That is, traders receive payments or make them depending on their positions at some point in time. A party that played “long” owes to payout to a party with a short position if the rate dynamics are positive.
Since the market is volatile, crypto futures investments appear to be risky, so learn the topic thoroughly and practice this type of trading, for example, on the WhiteBIT crypto exchange in a demo trading account.