As the market of digital assets develops, many new crypto platforms emerge, offering loads of convenient features for earning from crypto trading. The most popular tools are:
- Spot market
- Futures trading
- P2P exchange
We will discuss how does crypto futures work.
Crypto futures is a financial instrument largely used by experienced traders and investors. The essence of futures is betting on the future price of crypto assets. Correct price forecast requires in-depth knowledge of the market and the ability to see further market movements. For that purpose, investors investigate the market trends and charts, learn the asset’s price changes history, make technical analyses, and keep track of the news background. This is a broad topic to learn, so beginner traders might find it difficult to comprehend “How does futures trading work?”. We will try to explain it in simple terms.
How does Futures Market Work?
Crypto futures are traded through concluding a derivative contract between two parties. It is not necessary to purchase assets immediately – the parties buy a contract by which they are obliged to buy or sell them when the day comes. The contract includes the pre-agreed value and the date when the participants must complete settlements.
One party bets that the price will increase. Such a position is called “long”. If the forecast is made correctly, the trader who went long sells his assets at a higher price on the day of the contract expiration. Another party bets that the price will drop, so the trader sells his holdings with the purpose of buying them back when the price drops. If the price really falls by the contract’s expiration date, the trader buys assets at a reduced price.
Crypto futures contracts can be perpetual. That is, the parties do not have to fulfill their obligations on the contract’s expiration day; instead, they payout each other interest depending on the positions they have opened and real price fluctuations.
To understand this topic better, read the WhiteBIT Blog, a resource with articles and guides on crypto trading.
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