![]() ![]() Lucrative endeavors such as futures trading come with their fair share of advantages and disadvantages. ![]() Investors will pay or receive funding payments relative to the open market positions, which can have adverse effects.įor instance, funding rates may surge in an overheated bull market, making it costly for traders to hold long positions. Therefore, exchanges require a system that ensures that the index prices and futures prices converge regularly, which is called the funding rate.įunding rates are calculated based on the price difference between spot and futures markets. ![]() Funding RatesĬrypto perpetual contracts don't settle like traditional futures contracts. When a trader's maintenance margin limit is hit, the open position gets liquidated. Maintenance margin checks are continuous and help in margin utilization calculation. On the other hand, maintenance margin refers to the minimum amount that investors need to keep trading position(s) open. It is the percentage of a futures position’s notional value that must be covered by BUSD or another collateral when using a futures trading account. Margin RequirementsĪn initial margin is needed to enter into a futures position. In contrast, leverage is not available in spot trading so if you only have 100 BUSD in your spot wallet, you can only afford 100 BUSD worth of Bitcoin. But with a futures contract, you can open a long BTC position at a fraction of the cost thanks to leverage. The lure of leverage draws traders to the futures market, making it extremely capital-efficient.įor example, to buy 1 BTC on the spot market, you'd need thousands of dollars. Here are a few terminologies that can get you closer to becoming a successful crypto derivatives trader. T raders tend to familiarize themselves with the essential concepts that are involved in crypto derivatives to have a better understanding of the benefits these financial products have to offer. John, on the other hand, will receive a profit of $5,000 from the exchange. In this case, Sarah, who is holding a losing trade, will have to pay the exchange the deficit loss of $5,000 ($45,000-$40,000 = $5,000). Then, prices moved up and John and Sarah decided to settle their positions at $45,000. ![]() John entered a long futures position when BTC was trading at $40,000 while Sarah entered a short position at the same time. The most vital thing to note in crypto futures trading is that you only take risks on the price changes without holding the actual cryptocurrency. While digital assets are met with diverse and unique challenges, from high volatility to negative publicity, some traders use this volatility to their advantage. Due to the high volatility associated with derivatives trading, traders must manage risks prudently, and it’s imperative to learn the fundamental basics of crypto futures before investing. Essentially, crypto futures contracts give market participants the opportunity to make profits regardless of the price direction of the underlying asset.Ĭrypto futures contracts are tradeable 24/7 on derivative trading platforms like Binance Futures. Traders can sell high and buy low to profit from the price difference, which is known as short selling. The dominant aspect of crypto futures trading is that it can protect investors against adverse market conditions. When a crypto futures contract expires, the trade is settled in cash rather than the actual digital asset. Therefore, the value of a crypto futures contract derives from the digital asset it represents, such as Bitcoin or Ethereum. It is a similar concept to stock indices or derivatives contracts involving commodities, where an investor can take risks on an asset’s future value. What Are Crypto Futures?į utures contracts like USDT-margined futures allow traders to gain exposure to cryptocurrencies without the need to possess the underlying asset. Often, people confuse futures with options but these instruments are quite opposite from each other, offering different benefits. Other than being one of the most traded crypto derivatives products, futures embody many long-established derivatives. Digital assets now take a significant part of the portfolio of the average investor and their volatility makes them an excellent financial product for futures trading. Leverage draws traders to the futures market, making it extremely capital-efficient.ĭerivative contracts have been in existence for almost a century, but it wasn't long ago when trading platforms started adding cryptocurrencies to their offerings. Futures contracts allows traders to gain exposure to cryptocurrencies without the need to possess the underlying asset. ![]()
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