What are Futures Contracts?
Futures contracts are an essential part of traditional finance: they are highly complex financial instruments that advanced or technical investors use. Investors, corporations, and governments use derivatives such as futures contracts to protect their exposure to risk and volatility of asset prices.
A derivative is a financial contract that derives its value from an underlying asset. Traditionally, derivatives are used in markets such as commodities, currencies, stocks, or bonds. These contracts can be traded over the counter or through an exchange.
What are Cryptocurrency Futures?
In the crypto industry, the futures market is a fast-growing sector that generates trillions in volume monthly. Like stock options or commodity futures contracts, crypto futures offer protection against volatility and adverse price movements on cryptocurrencies. A crypto futures contract is also a proxy tool for investors to speculate on the future prices of cryptocurrencies. It can also be used to hedge against price changes of cryptocurrencies.
Benefits of trading Cryptocurrency Futures
- Flexibility: Non-crypto holders can speculate on the price of a cryptocurrency and make quick profits. You can open a position in a crypto futures contract with stablecoins such as USDT, or any cryptocurrencies, and any profits made will be settled in the currencies you selected.
- Leverage: Gain significant exposure to a specific cryptocurrency with only a fraction of its total cost. With leverage, you can magnify small price movements to create profits that justify your time and effort.
- Liquidity: Crypto futures markets are extremely liquid, with trillions in trading volume. A liquid market is less risky because traders can enter and exit their positions easily with minimal slippage.
- Portfolio Diversification: Diversify across trading strategies to generate more profits. You can develop sophisticated trading strategies, such as short-selling, arbitrage, pairs trading, etc.