Since 2017, investors and traders were able to do Bitcoin futures trading. This is not something new, futures have existed since 1972, mainly used in Forex and the stock market. Futures work a bit different compared to regular cryptocurrency trading. Usually, you invest in a cryptocurrency like Bitcoin, then sell it when the price rises for a profit. One downside to this, is that the price can keep rising and this will make you lose out on profits. Futures allow traders to prepare for situations like these by minimizing risk. That’s why trading futures is extremely important if you are interested in diversifying your portfolio.
What are crypto & Bitcoin futures?
Futures are a form of contracts between two parties, to either buy or sell an asset. The buy or sell date is predetermined, at a fixed price. However, you are not actually trading the asset itself. That’s why futures are also called Derivative Products, you do not have to own the underlying token to trade futures. In this article, we will look at how it exactly works, where you can get started, and which exchange is the best for trading in crypto futures.
How do crypto Bitcoin futures work?
With BTC futures, you are able to speculate on the future of the market, where you agree to buy or sell an asset like Bitcoin at a later date. This is done through a futures contract, and when you purchase one, you do not actually own the underlying cryptocurrency. So if you are expecting a cryptocurrency like Bitcoin to go up, you can take a long position. Having a long position basically means that you have bought the futures contract. On the other hand, if you are expecting a price drop, you will take a short position, meaning that you will sell the contract.
Benefits of futures
There are a few benefits of trading in Bitcoin futures trading instead of actually trading Bitcoins. First of all, future contracts have the benefit of bringing you profit, even if the price of the underlying cryptocurrency is falling. With Bitcoin futures you can take a short position, and basically take profit when the price of Bitcoin falls.
Another big advantage of trading crypto futures, is leverage. Leverage allows investors and traders to take larger positions. You can think of it as a loan, where you can spend less to afford more. For example, if you have $1,000 that you want to trade, you could get a 10x leverage that allows you trade with $10,000 instead. This way you can make much larger profits and similarly, risk higher losses when trading with BTC futures. That’s why it is not recommended for beginners to make use of leverages. Finally, it is very well regulated by CFTC (Commodity Futures Trading Commission).
These regulations will bring a safer experience to everyone involved in crypto futures trading. Furthermore, futures are usually still available in countries where cryptocurrencies might be banned, making Bitcoin options more accessible for everyone.
Futures vs. trading
The main difference between crypto futures and regular trading is the fact that with futures you do not directly own the asset you are trading in. With trading, you buy a specified amount of a cryptocurrency, like BTC, and sell it later at a higher price. In contrast, with futures, you are speculating on the price of an asset to go up or down. So you are not actually trading Bitcoins, but rather placing a ‘bet’ on its future price. In other words, you could say that the main difference is the ‘delivery date’.
Trading in BTC futures: where to trade Bitcoin futures?
Trading in Bitcoin futures can be simply put:
- If you think that the price of BTC will rise, you can buy a Bitcoin future (long position), and when the price does rise, you make profit.
- If you think that the price will go down instead, you can sell a Bitcoin future (short position), and make profit when the price goes down.
If you are interested in Bitcoin futures trading, it can be good to know where you can get started with this. There are many different platforms offering investors and traders the ability to trade in crypto futures. A lot of exchanges where investors are used to buying and selling cryptocurrency, also offer the ability to trade in futures. In the next part we will look at the top 3 exchanges that allow you to trade in Bitcoin futures.
Top 3 exchanges for Bitcoin futures
Kraken is one of the most popular cryptocurrency exchanges in the world, used by millions of people worldwide for trading cryptocurrency. They also have a separate platform, called Kraken Futures. This platform allows its users to easily trade in crypto futures. To get started, you will first need an account on Kraken, after which you can activate a Kraken Futures account, and instantly start trading BTC futures.
Many traders prefer Kraken Futures over other platforms when it comes to trading Bitcoin futures and Bitcoin options, because they offer several advantages.
- Kraken Futures offers up to 50x leverage;
- They have a Demo platform where you can practice as a beginner;
- Similarly, they have educational content for beginners to learn more about futures;
- Intuitive trading interface;
- Robust system that has been relied on for years;
- 24/7 personal support.
eToro is a big name in the world of trading and cryptocurrency. Currently, eToro is trusted by millions of users worldwide. On eToro, users can trade CFDs (Contracts for Difference) easily, these works a bit different than regular future contracts. CFDs are generally considered to be more flexible. They also offer various bonuses like leveraging which could entice traders and investors to use eToro.
- eToro offers up to 30x leverage;
- You are able to use a demo account where you can practice without any risk;
- Dedicated customer support 24/7;
- eToro has a system called CopyTrader, where you can copy the trades of other traders;
- Reliable platform with regulations.
Binance is one of the largest cryptocurrency exchanges right now, a highly reliable exchange and trusted by millions. In 2019, they launched a platform called Binance Futures allowing traders to speculate on prices of Bitcoin and other cryptocurrencies with futures. To get started, you will need to create a Binance account first, after which you can activate a Binance Futures account, and instantly get started with trading Bitcoin futures.
- Traders on Binance Futures are allowed leverage of up to 125x;
- The ability to use a demo account to get familiar with the platform and future trading in general;
- Easy to navigate and user-friendly interface;
- A wide range of tools to support technical analysis;
- 24/7 customer support.
In conclusion, we think that Binance Futures is currently the best platform to use if you are interested in trading BTC futures and Bitcoin options. Its advantages outweigh the advantages of other exchanges, which is why we would recommend it. Make sure you still do your own research, like always.
Frequently Asked Questions
Do I need to own Bitcoin to get started with Bitcoin futures trading?
No, when trading in crypto futures, you are not required to own the underlying cryptocurrency in order to get started.
Am I required to have a wallet to trade BTC futures?
You do not need a wallet. Future trading does not involve the exchange of cryptocurrency or trading Bitcoins, it is settled with your local currency.
Is Bitcoin futures trading better than regular Bitcoin trading?
Trading in futures has many advantages, but it also has disadvantages. It is up to you as a trader to weigh these against each other, and decide which one is better for you.
How does leverage work?
Leverage is a way to increase your buying power, without actually owning the capital. For example, with 10x leverage, if you purchase $1,000 worth of BTC as a future contract, only 1/10th of the position size, in this case $100, will be withheld from your balance. When the price of BTC rises and your position size increases to, for example, $1,200, your net profit will be $100.
In this article, we looked at Bitcoin futures, and what they are. We explained how they work and what the difference is between futures trading and regular crypto trading. Then, we compared the top 3 exchanges for crypto futures to see which is the best one, which in our case was Binance. We hope that this article was helpful in getting you to learn more about futures trading, and where to get started if you are interested in trading BTC futures.