Futures Trading in Cryptocurrency


Cryptocurrency is as volatile as it is lucrative, and as such, different devices and strategies are utilized to try to “get ahead of the curve”. A few of those strategies include buying and holding and futures trading. For the purpose of this article, we’ll be placing the focus on the latter.

The most risk free and most employed strategy would be buying and holding, what then makes futures trading so enticing? Crypto futures trading allows investors to speculate on the future value of a token/coin. For instance, participants can either go long, anticipating a price rise, or go short, anticipating a price drop

Futures Trading

Futures Trading (also called Futures Contract) is an agreement to sell/buy an asset or commodity at a future date for a fixed price. It allows investors the chance to protect against wild price swings, as commonly seen in the crypto space. This is a very attractive investment strategy as it offers the possibility to earn an increased return on investments by increasing the leverage, and also offers a way to get the most out of bullish and especially bearish markets.

Crypto futures trading is more or less speculation on the future value of a cryptocurrency; therefore, the market could also move against your prediction. If that happens, a trader could lose all of his investment. 

In illustration; if an investor believes the price of a coin/token will increase, the investor can get into a buy futures contract, take a “long” position, depending on the margin and leverage used, and make a profit, or if the investor believes the price of a coin/token will fall, the investor can get into a sell futures contract and take a “short” position to mitigate losses, depending on the margin and leverage used. 

This feature is not readily available in all crypto trading platforms, nonetheless, there are a number of reliable crypto trading platforms like BitQT. This platform allows you to diversify your trading mechanics wirh the goal of helping you maximize profit. You should check it out ASAP.

Margin and Leverage

Margin is the amount required to open a position. The percentage of funds required, instead of the full value, to open a much larger position is called ‘initial margin’.

Leverage is, simply put, a multiplier. The leverage made available allows for better capital efficiency as traders/investors do not have to make use of entire amounts of capital, to make amplified profits.

Let’s take a look at this scenario:

Imagine you want to place a futures buy contract worth $1000 with an initial margin of 0.5%. This means that you only need to invest 0.5% of the full value of the position which is $5.  A 10% price rise will give you a profit of $100 on your investment as opposed to the 50 cents mathematically expected on your investment .You have controlled a trade position worth $1000 with just $5, with a leverage of 200:1 or x200, and an initial margin of 0.5%. This means that your trade positions and resulting profits/losses are multiplied 200 times.

Margin/Leverage can be a double-edged sword as it allows for magnified profits, but also losses. You could also lose more than your initial amount depending on leverage. Futures trading in cryptocurrency is a high-risk, high-reward endeavor. It’s not enough to know the market trend, or be good at predictions, it requires experience, research and a good knowledge of trading to participate. 

Futures trading looks like a get rich quick investment, but it’s far from that. The crypto market is highly volatile, and requires studying of positions before deciding to take one. This makes futures trading as risky as they come. So, to cap it up with the most common investment cliché, “Don’t invest what you can’t afford to lose”