Crypto futures are a pretty fun trading instrument, and the best part is that you don’t have to hold actual cryptocurrency to profit off of them! For those unaware of what futures crypto trading actually is, futures contracts are basically agreements to buy or sell a particular cryptocurrency at a certain point of time in the future, at a fixed price.   

Now, cryptocurrency futures give you the benefit of profiting from your outlook on an asset. So if you have pretty strong opinions about, say, Bitcoin seeing a price hike by the end of the year, you can buy a Bitcoin futures contract that lets you bet accordingly. 

Still not clear on what crypto futures are? Worry not, because in this post we bring you the noob’s guide to futures crypto trading!

What are Crypto Futures?

So – what is futures *actually* anyway? There are many who are not familiar with the term. Similar to futures traded on traditional asset classes, crypto futures are a means to bet on the price movement of particular cryptocurrencies without holding the actual cryptos. Speaking of crypto futures – did you know that the first mainstream version of them was launched only back in 2017, when the Chicago Mercantile Exchange or the CME started enabling the trading of Bitcoin futures?

Futures contracts were initially intended to help market players manage their risk exposure to certain assets, like precious metals like gold or oil. However, now crypto futures have also proven to be very useful to speculators, since you can take control of pretty big holdings with just a fraction of the money you’d need in regular crypto trading. Crypto futures have already given profits to many, given they’re doing it right.  

Notably, a perpetual contract is a specific kind of cryptocurrency futures contract. As the name implies, a perpetual futures contract does not have an expiry date like a normal futures, so you can hold on to a position for as long as you like.

How Do Crypto Futures Work?

Let’s suppose you have a pretty solid belief that BTC will see a price increase by the end of 2022. At this point, you can’t use your forecast to earn profits in the Bitcoin spot market. However, you can instead open a long position in the crypto’s futures market, by buying a Bitcoin futures contract with an expiry date set around the end of the year. At the contract’s expiry date, you and the seller of the contract can settle the trade at the prefixed price and close the contract.

Benefits of Crypto Futures

So now you know how cryptocurrency futures work. Now, what are the many benefits of such a trade? Of course, with crypto futures contracts you get several unique benefits not available to spot trading. Let’s see what they are! 

• Safer than Crypto ownership

Investing in cryptocurrency futures means you are not directly investing in a crypto, which means even those that can’t invest in the actual digital assets like Bitcoin for location-specific or other issues can still open a position in the crypto futures markets. What’s more, because crypto futures contracts allow investors to reduce their risk exposure to the asset class, they are easier for a crypto trader who wants to avoid the risks of spot trading to invest in.

• Simplicity

The procedure for investing in cryptocurrency is made way simpler via crypto futures, even for newbies to the crypto space. Spot trading of cryptos needs you to have access to a liquid market and have a secure virtual wallet. However, with cryptocurrency futures, the investor does not need to set up an online wallet or place money into custody services for safekeeping and protection while trading. Eliminating the danger of actual ownership of a risky asset is an additional advantage of contracts with cash settlements.

• Leverage

Crypto futures trading makes for higher potential profits. You can trade cryptocurrency futures with varying degrees of leverage for the profits to be even better. However, one thing you must keep in mind is that the risks of loss are higher the more leverage you use. 

On the plus side, using leverage on your cryptocurrency futures trading means you can use your fund to invest in multiple positions at once instead of just one. 

• Hedging

Cryptocurrency futures are an excellent instrument for hedging- i.e. guarding your investments against potential risks. 

• Flexibility

You have much better flexibility when deciding trading strategies in the cryptocurrency futures market than with actual cryptocurrencies, especially when we’re discussing intra-day trading. 

How to Trade Crypto Futures?

Trading cryptocurrency futures can be the easiest thing. All you need is an exchange platform to facilitate the trade. Then you can open a trading account and start trading. After selecting a cryptocurrency futures contract of your choosing, you need to select the strike price at which you want to trade, pay the premium, and then you are done.

Conclusion

Futures trading is definitely not for everyone, despite all these advantages. They demand a thorough grasp of the underlying asset and the state of the economy since they are volatile and complicated. Success in trading cryptocurrency futures demands a moderate to high risk tolerance (as crypto is still involved), a platform where you can effectively execute your trading strategy, and lots of caffeine. Just be sure to fully comprehend how these crypto derivatives contracts operate before making a purchase.