Table of contents:
What Are Crypto Futures?
How Do Crypto Futures Work?
Basic Concepts of Crypto Futures Trading
How to Trade Futures Contracts on Binance?
Benefits of Trading Futures with Binance
Conclusion
WHAT ARE CRYPTO FUTURES?
Futures contracts like USDT-margined futures allow traders to gain exposure to cryptocurrencies without the need to possess the underlying asset. It is a similar concept to stock indices or derivatives contracts involving commodities, where an investor can take risks on an asset’s future value. Therefore, the value of a crypto futures contract derives from the digital asset it represents, such as Bitcoin or Ethereum.
When a crypto futures contract expires, the trade is settled in cash rather than the actual digital asset.
The dominant aspect of crypto futures trading is that it can protect investors against adverse market conditions. Traders can sell high and buy low to profit from the price difference, which is known as short selling. Essentially, crypto futures contracts give market participants the opportunity to make profits regardless of the price direction of the underlying asset.
Crypto futures contracts are tradeable 24/7 on derivative trading platforms like Binance Futures. Due to the high volatility associated with derivatives trading, traders must manage risks prudently, and it’s imperative to learn the fundamental basics of crypto futures before investing.
HOW DO CRYPTO FUTURES WORK?
While digital assets are met with diverse and unique challenges, from high volatility to negative publicity, some traders use this volatility to their advantage.
The most vital thing to note in crypto futures trading is that you only take risks on the price changes without holding the actual cryptocurrency.
Let’s consider a simplified example!
John entered a long futures position when BTC was trading at $40,000 while Sarah entered a short position at the same time. Then, prices moved up and John and Sarah decided to settle their positions at $45,000. In this case, Sarah, who is holding a losing trade, will have to pay the exchange the deficit loss of $5,000 ($45,000-$40,000 = $5,000). John, on the other hand, will receive a profit of $5,000 from the exchange.
BASIC CONCEPTS OF CRYPTO FUTURES TRADING
Traders tend to familiarize themselves with the essential concepts that are involved in crypto derivatives to have a better understanding of the benefits these financial products have to offer.
Here are a few terminologies that can get you closer to becoming a successful crypto derivatives trader.
1. Leverage
The lure of leverage draws traders to the futures market, making it extremely capital-efficient.
For example, to buy 1 BTC on the spot market, you'd need thousands of dollars. But with a futures contract, you can open a long BTC position at a fraction of the cost thanks to leverage.
In contrast, leverage is not available in spot trading so if you only have 100 BUSD in your spot wallet, you can only afford 100 BUSD worth of Bitcoin.
2. Margin Requirements
An initial margin is needed to enter into a futures position. It is the percentage of a futures position’s notional value that must be covered by BUSD or another collateral when using a futures trading account.
On the other hand, maintenance margin refers to the minimum amount that investors need to keep trading position(s) open. Maintenance margin checks are continuous and help in margin utilization calculation.
When a trader’s maintenance margin limit is hit, the open position gets liquidated.
3. Funding Rates
Crypto perpetual contracts don't settle like traditional futures contracts. Therefore, exchanges require a system that ensures that the index prices and futures prices converge regularly, which is called the funding rate.
Funding rates are calculated based on the price difference between spot and futures markets. Investors will pay or receive funding payments relative to the open market positions, which can have adverse effects.
For instance, funding rates may surge in an overheated bull market, making it costly for traders to hold long positions.
HOW TO TRADE FUTURES CONTRACTS ON BINANCE?
Trading crypto derivatives contracts on Binance Futures is pretty straightforward. If you are an existing user, you can get started by following these steps:
Open a futures trading account on Binance Futures. Please note that you must enable 2FA verification to fund your futures account before you start trading.
Deposit funds to your futures wallet, such as USDT, BUSD, or any other cryptocurrencies supported by Binance Futures.
Select between the two derivative contracts available on Binance Futures: USDⓈ-M Futures and COIN-M Futures.
Select the appropriate amount of leverage for your position.
Place buy-limit, buy-market, or any other type of orders available on Binance Futures.
BENEFITS OF TRADING FUTURES WITH BINANCE
Binance didn’t just become the leading crypto exchange overnight. Binance has climbed up the ladder to offer traders many financial products that will get them closer to achieving their goals.
Binance Futures offers a huge selection of cryptos. There are more than 530 crypto-to-crypto trading pairs, enabling users to trade anything from DeFi tokens to memecoins like Dogecoin and Shiba Inu. New coins are constantly being listed to provide traders with the best trading experience.
Thanks to its enormous selection of trading pairs, Binance Futures has become one of the most liquid derivatives exchanges in the market. Traders can always expect their buy and sell orders to get filled promptly without having to worry about slippage.
Another attractive benefit of Binance Futures is its exceptionally low fee structure. Maker/taker fees can go as low as 0.000%/0.017%, allowing traders to keep their hard-earned profits. These fees can be slashed even further by simply holding BUSD or BNB.
Binance Futures also provides a generously wide range of leverage for accounts with a balance of $0 to $50,000 so that every trader can grow their portfolio no matter their account balance.
What's even more fascinating is the ability to make profits regardless of the market's direction. With Binance Futures, traders can sell high and buy low or buy low and sell high to benefit from any price fluctuation while implementing different strategies like Grid Trading and TWAP.
With more than 28.6 million active users, Binance has built a strong reputation over the years to the point that many people worldwide would argue that if a crypto is listed on Binance, it is a legitimate project.
The vast number of Binance users has helped push trading volumes in the platform into the trillions of dollars. As a matter of fact, Binance was responsible for $7.7 trillion in crypto exchange volume in 2021 and had a 24-hour peak of $76 billion.
But with great power comes great responsibility. That's why Binance has built one of the most secure trading platforms in the world where users can enjoy different security features, such as KYC, 2FA, and Anti-Phishing Code, to protect themselves against nefarious actors.
Users can also rest assured that their funds are SAFU in Binance. Its Insurance Fund holds nearly $300 million to protect bankrupt traders from adverse losses while ensuring that the profits of winning traders are paid out in full.
Lastly, Binance offers support in 17 different languages with an incredibly intuitive and easy-to-use user interface to ensure that any trader from anywhere in the world can participate in the crypto revolution.
CONCLUSION
Crypto derivatives trading is a convenient way to speculate on the future valuation of digital assets. It can be lucrative for those with the proper knowledge and a solid risk management strategy.
Binance Futures has grown to become the most liquid derivatives exchange in the market. It provides users with the tightest bid/offer spread to help them avoid unnecessary risks. The vast selection of trading pairs and enormous trading volumes make Binance Futures the preferred crypto derivatives exchange for more than 28.6 million active traders.
Even inexperienced traders are taking advance of Binance Futures to sharpen their skills. It offers a dedicated mock trading environment for users to learn how to trade at their own pace with zero risks. Anyone can practice in real-time trading live cryptocurrency markets without losing any capital.