What Do You Know About Cryptocurrency Futures Trading Platforms?

Investors have the option, via the use of crypto futures, to speculate on the price of bitcoin in the future without having to own or touch the cryptocurrency. Futures are standardized trading contracts that are entered into between two parties and comprise an agreement to buy or sell an underlying asset at a predetermined price on a certain date. In the case of bitcoin futures, bitcoin itself would function as the underlying asset.

Futures provide investors the ability to protect themselves from the risk of turbulent markets and guarantee that they will be able to buy or sell cryptocurrency at a predetermined price in the future. Naturally, if the price goes in the opposite way that a trader intends it to travel, the trader may end up having to pay more than the current market price for bitcoin or selling it at a loss.

Futures contracts give investors the opportunity to indirectly gain exposure to bitcoin and potentially profit from the price movements of the cryptocurrency. Rather than buying or selling a cryptocurrency such as bitcoin directly, which requires the establishment of a crypto wallet and the navigation of complex exchanges, investors can, in certain circumstances, gain exposure to bitcoin through futures contracts.

How Do Futures Contracts for Cryptocurrency Work on Regulated Exchanges?

To participate in futures trading, you will need to open an account with a futures commission broker or an introducing broker who is registered. The investor has the option of either keeping the futures contracts for themselves or selling them to another party, depending on the variations in Bitcoin's price. When the term of the contracts concludes, the investor has the choice of either letting the contracts expire and collecting the cash settlement that is due or rolling them over into new contracts.

The actions required to engage in trading for Bitcoin futures are identical to those required to engage in trade for a standard futures contract. The first thing you need to do is open an account with the brokerage firm or exchange platform through which you want to trade. After your account has been verified, you will still need further verification from the trading service provider before you can begin trading futures. In most cases, the latter permission is determined by the account holder's level of expertise in the field of derivatives trading in addition to the financial criteria.

The same factors also play an important part in calculating the amount of leverage and margin that should be applied to your transaction. When it comes to the actual execution of contracts, futures trading heavily relies on leverage. The maximum level of leverage that is permitted on exchanges and trading venues that are regulated is governed by government authorities.

The Benefits of Investing in Futures Trading for Cryptocurrencies Via Platforms

The fact that trading cryptocurrency futures contracts provides regulated access to various cryptocurrencies is the primary benefit associated with doing so. That is an important factor to consider considering the unpredictable market environment and the dramatic price fluctuations. 

The Commodities Futures Trading Commission monitors and oversees the trading of futures contracts for bitcoin on all exchanges (CFTC). Institutional investors, who make up the vast bulk of traders in such contracts, are provided with some amount of confidence and redress because of this.

  • Simplicity

The process of making an investment decision may also be made easier by using crypto futures. Since there's no physical Bitcoin exchange, the investor does not need to construct a cryptocurrency wallet or put money into custody solutions for safekeeping and protection while trading. Both options are unnecessary. The elimination of the risk associated with the actual ownership of a volatile item is an additional advantage offered by cash-settled contracts.

  • More Secure Than Owning Cryptocurrency

Although futures trading contains position and price restrictions, they allow investors to reduce the amount of risk exposure they have to the asset class. As a result, crypto futures contracts offer a comparatively safer way to dabble in cryptocurrency without the danger of being burned.

  • Position Limits

The position restrictions for different exchanges are different. For instance, one exchange permits a maximum of 2,000 front-month futures contracts and 5,000 contracts across all maturities combined in a single trade. Then there is another one that features a position limit adjustment tool that permits manual reconfiguration of limits depending on historical trading behaviour and margin amounts. This one also comes with a feature called a stop-loss order.

Keeping These Important Things in Mind When Trading Cryptocurrency Futures

The number of exchanges that allow for the trading of cryptocurrency futures is low, as are the total number of market participants and the trading volume. This is in comparison to other types of commodities. This indicates that trading bitcoin futures comes with its own unique set of quirks and nuances.

  • Trading Volume

It is possible for the trading volumes of cryptocurrency futures to mirror those of the cryptocurrency's spot market equivalent. There is also the possibility of significant price variations, particularly during periods of market volatility. During certain periods, the values of cryptocurrency futures may seem to track the prices of the spot market, or they may trade at a considerable premium or discount to the current prices.

Read more: Factors affecting crypto volatility

Over this, it is possible that Bitcoin futures may not provide enough protection against the volatility of the market that they are based on. "Among other things, investors should recognize that Bitcoin is a very speculative investment. This includes getting exposure via the Bitcoin futures market,"

  • The Vast Majority of Exchanges Are Not Regulated

Most of the cryptocurrency futures trading takes place on unregulated exchanges, with a few exceptions for specific trading venues.

The Bottom Line

It's possible that cryptocurrency futures are the solution to your question about how to get exposure to crypto assets. The cryptocurrency market is known to be very volatile, and although this presents numerous opportunities, it also presents many hazards. People must exercise caution and vigilantly monitor their positions whenever they make any kind of investment.

The risks associated with futures products are distinct and often severe. You need to give serious thought to whether investing in crypto futures is a good idea for you considering the experience you have, the goals you want to achieve, the resources you have available, and any other factors that are pertinent. Before making any choices with money, one should always discuss their options with a knowledgeable expert first, since the circumstances of each person's life are completely unique.

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