Bitcoin is known for its volatility. Invented in 2009, experts have been studying the trajectory of this pioneering technology for 13 years now. Despite this, we still have a lot to learn about cryptocurrencies and navigating the market. There is always a degree of risk in trading cryptocurrencies, entire markets can change overnight and even the most skillful traders can find themselves left in the dark.
For instance, the early days of the Covid-19 pandemic saw Bitcoin’s value practically halved overnight, dropping to $4,000. By autumn, it had tripled in value, before dropping again, this time by $2,000.
Spot trading is a term used to describe the standard process of buying and selling Bitcoin. In spot trading, Bitcoin must be exchanged at the current market value. In 2017, a new form of trading cryptocurrencies was introduced, making the market more accessible. This method would allow those trading Bitcoin to secure prices in advance, so even if prices went on to skyrocket, the Bitcoin would have to be delivered at the agreed rate. This is what is known as a futures contract. A futures contract is a binding agreement to exchange an asset at a specific point in time for an already agreed price.
For the buyer, this means committing to buying cryptocurrency on an agreed date in the future at a specified price. For the seller, you’re agreeing to sell it at that time for the same previously agreed price, regardless of market fluctuations in the meantime. If you are purchasing Bitcoin, you want prices to rise, so then you are at an advantage, able to purchase Bitcoin below the market rate. If you’re the seller, you want prices to drop, putting you in a position where you’re able to sell your cryptocurrency above the going rate.
Futures contracts are highly leveraged investments. Experienced traders can observe the market and make skilled predictions about its future in order to generate significant profits. Making money through crypto futures contracts begins with studying the market and its patterns. You need an in-depth understanding of what Bitcoin futures contracts are, how indicators work and how to conduct basic technical analysis, for example, chart patterns.
By using crypto futures, traders can speculate on the price of assets without actually owning them. This means that traders can essentially bet on the future price of a cryptocurrency. These locked-in prices guarantee a return on your investment, regardless of future market conditions. Bitcoin futures are currently the most commonly used type of cryptocurrency futures contract.
So, how does using futures contracts translate into generating extra profits?
The following are three ways that traders are able to use Bitcoin futures to generate profits:
1. Reduced trading fees on futures contracts
Certain crypto exchanges offer reduced trading fees on futures contracts. This gives those trading Bitcoin another way to maximize their profits at a low cost.
2. Hedging
Traders also have the possibility of using hedging to offset some of the volatility of cryptocurrencies. Traders can use futures contracts to hedge their investments. For instance, when betting that the price of Bitcoin will increase, traders can short their futures as a hedge to ensure they turn a profit whatever the outcome. While hedging has the advantage of reducing risk, it also limits profits.
3. Cash Settlement
Bitcoin futures contracts are said to make the market more accessible, as they allow traders to access the market and make trades without being required to hold the cryptocurrency. Futures contracts are cash-settled. No Bitcoin wallet is required as Bitcoin is not exchanged during the transaction.
Cryptocurrency futures contracts offer traders a number of ways to maximize their profits. As well as making the market more accessible for the average person, futures contracts have furthered awareness and understanding of cryptocurrencies in the public domain. The onset of this newfound accessibility saw a surge of newcomers to the market in recent years. For new users, it’s important to remember that entering a futures contract is legally binding and you are obligated to fulfill that contract on its expiry date.
The more you learn about trading crypto, the more ready you are to try it out for yourself. For that, Your Friendly Crypto Exchange is here to exceed your expectations by providing the best tools and features. Register now on IXFI so you can start your journey and put all your knowledge to good use.
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Investment involves risk; any ideas or strategies discussed herein should therefore not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial and fiscal objectives, needs and risk tolerance. IXFI expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.
