What is Crypto Future Trading?

Crypto futures trading refers to an investment form of trading whereby someone speculates on what the price of a given cryptocurrency will be in the future without owning the actual asset. A person may enter a contract with another person to buy or sell a given cryptocurrency at a predetermined price by a specified date in the future. Therefore, one is exposed to both rising and falling prices with long and short positions, thus creating profit opportunities for traders based on market foresight.

How Crypto Futures Trading Works
Futures Contract: A futures contract is a mutual agreement between two parties for the buy or sale of an asset on a future date and on a previously set price. In crypto futures, the asset being bought or sold on a predetermined future date would be a cryptocurrency such as Bitcoin, Ethereum, or any other form of digital currency.

Long and Short Positions:

Long Position: Traders go long when they anticipate that the price of the cryptocurrency is going to rise. They buy the crypto at the contract price, anticipating to sell it later for a higher market price.
Short Position: Traders go short when they feel the price is going to drop. They agree to sell at the contract price, anticipating buying back the asset in the later run for a lower price.
Leverage: One of the features of futures trading is that leverage may be used. It is used to allow a trader to have control over a much larger position using less capital, amplifying both profits and losses. For instance, with 10x leverage, a trader is in control of $1,000 in crypto by using only $100.

Expiration Date: Some crypto futures contracts will have an expiration date: for example, monthly or quarterly. Then, they must be settled by a certain date, but perpetual futures contracts that do not have any form of expiration date are highly popular. In this particular type of contract, a trader can hold his position for as long as he wants, provided the margin is fulfilled.

Margin and Liquidation: A trader has to put up a fraction of the size of the position as the total margin, before establishing a futures position. When the market is moving against the trader and the account balance goes below the minimum margin required, the position may be liquidated automatically to close, in order to prevent any further losses in the account.

Advantages of Crypto Futures Trading
Profiting from Both Bull and Bear Markets: Futures allow the trader to profit from price movements in both directions.
Leverage: With leverage, the trader can magnify potential returns (though it also increases potential losses).
Risk Management: Futures can be used to hedge other positions, thereby reducing exposure to price volatility.
Risks Involved in Crypto Futures Trading
High Volatility: Cryptocurrencies are highly volatile, which can lead to significant price swings, making futures trading risky.
Levage-related risks: Leverage amplifies the profit but also magnifies the losses. High levages tend to liquidate positions over a short time.
Market Manipulation: Most recently, manipulation of the market is well prevalent in crypto as it is still at its embryonic stage and not regulated like other markets. This affects the price of futures.