Trading is as old as humanity itself. Futures trading is a bit more recent (as recent as 1710) and originated in Osaka, Japan. Crypto futures contracts trading is even more recent, practically an activity that is less than 5 years old.
The first-ever bitcoin future started trading in just 2017. However, despite being so recent, bitcoin futures trading is profitable and very attractive for many reasons.
Before going into more details about, let’s answer a question that many people ask themselves:
Is Bitcoin a good investment?
Yes, it definitely is.
Cryptocurrency trading has proven to be a very profitable activity as long as traders know how to do it. Despite its high volatility and the myths around it there are a lot of advantages of trading crypto, and better yet, crypto futures.
Crypto Futures Contracts
These contracts are traded online through exchanges and allow users to purchase them even if they do not own Bitcoins (or any other cryptocurrency for that matter). Profits or losses can be tracked on a daily basis and the outcome will depend on your contracts and the market.
A good way to understand how it works and why it is so advantageous is to see the contract as a contract. Obvious as it may sound, future contracts are a way of ensuring an asset’s price despite the market conditions.
If, for example, the asset’s price goes above your contract’s, you’ll be losing on some potential profit, but not necessarily losing money. However, if the price goes down your balance will increase.
Advantages Of Futures Trading
Cryptos are volatile investments, there’s no doubt about that. But the incredible profits that traders have perceived participating in this market is undeniable and appealing for new investors.
The most important advantage of futures trading is the way it works to minimize the risks of volatile markets.
Instead of doing what most traders do and focus on the basic buying low selling high strategy or just holding them in the long term, futures can minimize some of these risks by providing you a more predictable outcome.
Not only can you hedge an existing position but you can also leverage it and the price of a future is not nearly as volatile as the asset itself. This means that you can earn even more money by trading futures than by trading regular assets.
Volatility is both good and bad in terms of trading. Good if you know how to take advantage of it and mitigate the risks and bad if you’re trading based on luck and poor information.
Futures offer a way of mitigating these risks by setting a price in which the asset (Bitcoin in this case) will be sold in the future. There are other possibilities as well, but in essence that’s it.
This simply means that no matter how low the price gets, as a seller you’ll be paid what you agreed upon. As a buyer on the other hand, it protects you if prices go up because you won’t need to pay for that difference in price.
Also, volatility can generate positive income when trading futures. Due to its flexibility to take long or short positions can generate profit from the fluctuations in price.
Since these transactions are done through formal exchanges and each contract is unique, that eliminates a great part of the guesswork if not all. It is also a way of ensuring that the other party will not void the contract.
Some people definitely do not like this kind of contract because of its clarity, or nature. This is usually the case in some markets such as agriculture in which the quality of the asset plays an important role in the outcome of some contracts.
In the crypto market this is not the case because there is no difference in between each bitcoin, there is no quality standard, it is just a digital asset whose market price will vary depending on several factors.
So, crypto futures trading can be actually more beneficial than other types of futures.
Futures trading does leave room for speculation, and in these cases it can potentially be more beneficial than harmful.
Thanks to the nature of these contracts, you can decide whether or not to go long on futures if you believe that the price will skyrocket. On the other hand, if you believe that Bitcoin, for example, is going to break a new low in the near future you can get short on Bitcoin Futures.
This can mitigate the risks of falling prices and sometimes even generate profit from it.
This is another of the most important advantages of futures trading. A market with strong liquidity can greatly reduce risks through fair pricing and the ability to exit at any given time.
A good example of this can be the housing market. There are times in which the lack of liquidity makes selling a house really hard. Not many people are interested and those who are are probably looking for the cheapest price possible no matter what.
This is not the case in the futures trading market. The average trading volume in 2019 was about 19.2 million contracts each day. That’s a huge market and that means that there is a pretty robust liquidity.
Translated into the crypto futures trading this basically means that at any given time you could exit and still get a good price. Not bad if you feel like risks are too high.
Also, the chances of price manipulation are dramatically lowered in high liquidity markets.
- Great risk management tool
- Flexibility for short and long positions
- Leverage allows for bigger earnings
- Hedging an existing position
Future contracts are an undeniably useful tool for traders. In most cases the advantages surpass the risks.
All you need to succeed at futures trading is a good understanding of the market and a strategy to follow. Once you feel confident enough to start trading, this will prove to be a great opportunity to grow your income.