As a newcomer to the crypto space, you may be hearing your peers compare crypto futures trading with the usual crypto trading – or crypto spot trading. What are the differences between the two, and which one should you pick as a crypto trader?
Crypto futures contracts can be understood simply as a bet based contract over the future pricing of a cryptocurrency. The contract is signed between two investors, and it provides exposure to a cryptocurrency based on speculation. The buyer does not have to actually purchase the cryptocurrency. Rather they just place a bet on a certain amount of crypto by speculating on which direction its future price is going. The profit gained over the said price is paid to the investor, and if the currency fails to cross the price, the investor incurs loss.
So, why might picking crypto futures over crypto spot trading be a good idea? Let’s find out!
Understanding Crypto Futures Trading
When it comes to investing in cryptocurrency, there are multiple instruments that you can trade and earn money, along with the usual spot crypto trading.
Source / Crypto futures contract
True to their name, crypto futures allow you to bet on a crypto’s future. With crypto futures, you can either ‘sell’ if you believe a certain crypto’s price will be dropping at a certain point in the future, or you can ‘buy’ if you believe the opposite. At the determined expiration date of the crypto futures contract, the buyer must buy it from the seller.
Moreover, with crypto futures, you can even use leverage to hold a position worth more than your initial investment. Leveraging increases the risk in case your investments don’t go as planned, but at the same time the profits are multiplied when your trade does succeed.
Why Pick Crypto Futures Trading Over Spot Trading?
Crypto markets are one of the most volatile trading markets in the world. The price of a currency keeps fluctuating frequently, and the prices depend on multiple factors such as socio-political events across the globe. Spot crypto trading limits the investors as they have to actually purchase a currency first and then sell it off for a profit. On the other hand, crypto futures trading offers you more than one way of earning profits.
Let’s see why you should pick crypto futures trading over spot trading!
- With crypto futures, you don’t need to actually purchase any cryptos at the beginning. You can just invest a certain amount over speculation of the pricing.
- Another benefit of crypto futures trading is that you do not have to store your investment in any centralized wallets.
- With crypto futures, you can benefit from any market conditions, and not only when the market has a positive outlook.
- With leveraging, you can take up a position bigger than what your initial deposits would allow you.
Therefore, crypto futures certainly do provide a lot more perks compared to spot crypto trading.
Special Considerations
Now that you understand what crypto futures are and why many people prefer it over spot trading, you should also have some idea about certain considerations. One of the most important considerations is related to unregulated trading of crypto futures contracts. Many exchanges offering crypto futures contracts do not regulate the volume of transactions occurring. This might increase the volatility of the overall crypto futures trading market a lot more than the spot crypto trading market.
Conclusion
We do hope this post tells you about the benefits of futures, and why picking them over spot trading may be a good idea. Keep in mind though that while crypto futures contracts do offer faster and higher returns as compared to spot trading, the risk of volatility and chances of losses brought on by leveraging is higher as well.
As a newcomer to crypto trading, picking a beginner-friendly exchange like Millionero can prove beneficial for you, whether you’re trying out spot trading or crypto futures trading. Visit the Millionero exchange website today to get started!