Crypto futures markets are continuously growing and gaining more popularity. There are many great trading platforms offering loads of trading tools and the ability to use trading bots.
These platforms typically generate profits from various kinds of interest or transaction fees, depending on the type of instrument traded. Of course, trading any kind of futures contracts can be risky, especially since most traders opt to use leverage to maximize their profits.
Let’s take a more in-depth look at crypto futures, what they are, and how to trade them for a profit.
What are Crypto Futures Contracts?
Futures contracts are defined as legal agreements to buy or sell an asset at a predetermined price at a specific future time. Imagine two investors interested in Bitcoin, one promises to sell it at an agreed price, and the other one swears to buy it at the settlement date. These futures contracts allow speculators to guess and profit from changes in an asset’s price.
Traders can also use futures contracts to hedge against disadvantageous price movements. For example, if you own 1 BTC and you’re worried the price may fall, you can enter a futures contract that gives you the right to sell at current prices even if things change in the future. This would protect you in case of a sudden decrease in value.
Futures contracts come in several varieties. One of the most popular and perhaps easiest to start with is perpetual futures contracts. Since many investors are highly profitable trading these types of contracts, we will focus our explanation on this instrument.
How do Crypto Perpetual Futures Contracts Work?
Like futures contracts, these are agreements between buyers and sellers to engage in a future transaction. However, there is no specific settlement date, meaning that a trader can choose to close their position…