The term ‘Bitcoin futures’ is not by definition the literal translation of ‘Bitcoin future’, but who knows, it is not far from it. It’s not Bitcoin 2.0, but it’s a different way to approach Bitcoin trading. This article will take you through a detailed story of what Bitcoin futures are precisely and how they work, and you can make money with them.
We tell you what to take into account and what your opportunities and threats are in this way of acting. So open a cola, red bull or buttermilk and sit down for a while. Let us inspire and inform you to make a well-considered choice of which way of trading suits you best.
Futures vs trading
To get a bit of an idea of what futures are precisely, it can’t hurt to first zoom in on the ‘normal’ way of trading Bitcoin or trading in general. When that concept is clear, it is also easier to grasp the concept of futures. So let’s zoom in on regular trading first.
The ‘normal’ way of trading: spot trading
When you ‘normally’ move on trading platforms, you generally buy a product or part of a company. When a company or product is doing well, more people want a piece of the profit. When the company goes wrong, people prefer to sell their share to prevent it from no longer being worth anything.
The more demand there is for a stock, the more its price will increase. You can charge a lot more for a product when the whole world is screaming for it than when no one is waiting. Conversely, when there is an enormous supply (everyone wants to get rid of a share), but there are only a few interested parties to take the share from you, the price plummets and bottom prices are reached.
The practice of normal trading is that it generally increases by small percentages and decreases by small rates. Mergers, new technologies, developments at the macro-level (wars, trade agreements, oil crisis, etc.), and a general stock market crisis sometimes lead to relatively strong price fluctuations.
The futures way of trading
Where you usually notice that your shares are worth more or less and your portfolio is worth more or less, futures are much more focused on correctly predicting a price development. In other words, you don’t get in when the price is low and cross your fingers in the hope that the price will go up. Still, you can get in and indicate whether you expect the price to rise or the cost to fall. So you do not so much buy crypto, but you predict the price development.
With this, you can also earn serious money when a company loses value, which is quite different from the ‘normal way of trading. At the same time, you can also lose serious money while a company increases in value. It is all a matter of being able to estimate correctly. In addition, “leverages” often apply to futures. We will come back to this later. It is essential to realize that you do not buy a share or product but bet your money on predicting a price.
What are bitcoin futures
When we compare this typical way of trading with futures trading, the most significant difference is the timing. If you trade normally and with shares, you focus on the value of these shares. However, when you deal with futures, you focus much more on predicting prices and how they will behave in the future. When trading futures, the art is not to enter when the price is lower and then hope that it will rise, but rather to step in and indicate your expectations concerning the price. Just as you buy part of a company in the normal way of trading, with Bitcoin futures, it is more about predicting the development of the price. Therefore, when trading via futures, it is also possible to make money if a company falls in value. Still, the downside is also losing money if the value of a company increases. So you bet your money on the price prediction.
As mentioned before, you, therefore, conclude a kind of contract in which it is determined at what time and for what amount you buy or sell a Bitcoin.
The benefits of futures
Now that you know what futures are, it’s time to discuss the benefits. A significant advantage of futures trading is that no large investments are required to achieve a high return. This is due to the leverage effect, about which more later. Another big advantage – and a big difference from the normal way of trading – is the possibility of making money when the value falls. You do not buy the crypto but a derivative. This immediately leads us to the following advantage: it is not necessary to have coins to trade. Trading in futures also offers the opportunity to reduce the risks of your portfolio.
The disadvantages of futures
Of course, trading via futures is not a way that has no drawbacks. We have again gathered the most important ones for you here. Using the same leverage as discussed in the benefits can also backfire to lose more money than you put in. This can go fast, and you can lose a lot of money quickly. It is not the case that you can sit back when trading futures. It is precisely here that it is important to follow the market carefully and in this way to estimate the impact that the prices have on your futures.
Trading in bitcoin futures
The strategy you apply often depends on the factors of time, vision and goal.
The “Time” Factor
The time factor is a logical one. The more time you have in a day to trade, the more trades you can make. Do you have a job that takes you 12 hours a day, sitting 12 meters underground in the dark during the day, without any signal for your cell phone? Then the chance that you will become a very active day trader with dozens of trades per day is not very significant. If, on the other hand, you have made day trading your job, if you are constantly behind your screen by browsing graphs, the latest developments and world news, then this will match your profile much better.
The ‘Vision’ factor
The vision factor mainly depends on what your vision is on the development of a price. Have you taken a long position (i.e. do you expect the price to rise) and see a positive effect, but do you expect that positive trend to increase further? Then you want to hold your position for a more extended period. Do you think the maximum has been achieved? Then you would like to get rid of your position, to maximize your profit.
The ‘Goal’ factor
The target factor depends on why you want to trade futures. The expected answer is that you can make a lot of money in a short period of time. That is, of course, true, but there are also other possibilities. For example, futures are also regularly used to seal or mitigate (mitigate) a certain financial risk. As an example: You have a portfolio of 10 Bitcoin in your wallet. These are tokens that you own. That portfolio can, of course, be worth more or less.
You hope that the price of Bitcoin will rise, making the portfolio more valuable, but at the same time, you can choose to take a ‘short position’ in Bitcoin next to your portfolio. Should the price of Bitcoin fall, your short position ensure that – even if your portfolio of 10 Bitcoin decreases in value – your losses are cushioned because your short position makes a profit. This means that the effect of a possible price increase or decrease has a more negligible impact on your financial position.
So there are traders who take positions for just a few seconds or a few minutes. The profits are relatively low, and the number of trades in a day (to still achieve large profits per day) can increase considerably. Other traders take it easy and hold positions longer. Then some traders use futures as a mitigating effect, as discussed in the previous paragraph. Depending on your goal, wishes and the extent to which you want and can invest in futures trading, it is essential to deploy and optimize your strategy.
Where to trade bitcoin futures
There are a lot of places where you can trade BTC futures. Here we will talk about some of the more well known and some of the best.
Binance is worldwide known and used for cryptocurrency. It is no surprise that they also allow using bitcoin futures.
Suppose you like to watch YouTube or any streaming service that runs ads. You’ve probably heard of eToro by now. The best thing is that they aren’t only well known, they are also one of the best brokers you can find.
Maybe the lesser-known of these three. But the one that mainly specializes in bitcoin options and crypto futures. If you especially want to trade futures, this is the place to be.
Futures are and remain products characterized as high risk. It is always essential to fully understand the financial product before deciding to trade in it. Therefore, always be well informed by a specialist or by going through all available information about the economic developments. This is constantly your responsibility.
Please note: keep in mind that all explanations and explanations in this article should in no way be construed as advice. The choice for whether and how you want to trade crypto and which choices you make in terms of buying and selling is up to you and you alone. We are not financial advisors.