“A current market price in a futures exchange platform is $9100/unit for Bitcoin. Essentially, if one purchases the contract without leverage, he/she owns 1 unit of BTC. Most investment vehicles would require the investor to deposit the full value of the underlying asset. However, when it comes to futures contract, which operated with leverage mechanism, he/she does not need to pay 100% of the contract’s value.
The futures exchange requires a small deposit known as margin requirement. For example, the futures exchange requires $9100/5= $1820 only from the investors. The leverage formula looks like:
Leverage = Position size / Margin
Effectively, an investor owns $9100 worth of BTC for only $1820. As one can see from this example, leverage allows one to own a considerable amount of BTC with a very small amount of money.”
As a trader and investor, one should always remember that leverage is a double-edged sword. If one participates in a leveraged investment and it moves in his/her favour, enjoyment of a substantial rate of return is promised. On the other hand, if the leveraged investment moves in the opposite direction, the losses will be magnified.
What are futures?
Futures are derivatives contract that derive value from a financial asset. In the case of cryptocurrency, Bitcoin futures, sometimes seen as perpetual, swap, CFD are derivatives contract from Bitcoin.
Future contracts, because of the way they are structured and traded, have many inherent advantages over spot trading. In the coming 26/7, Qidax crypto exchange platform is proud to launch its futures contract for Bitcoin and Ethereum with 5 times to 125 times leverage in the platform. In other words, it means traders or investors can enjoy up to 125x profit in Qidax platform. The top 5 advantages of future contracts include:
1. Leverage feature
To trade futures, an investor needs a margin deposit, which is known as a fraction of the total amount (typically 10% of the contract value). Margin is money borrowed from the exchange platform to purchase an investment. Another word, it is the act of borrowing money to buy securities. Leverage allows traders or investors to trade using only a small portion of the underlying asset price.
2. Liquidity of the market
Future contracts are traded in huge numbers every day and hence futures are very liquid. The constant presence of buyers and sellers in the future markets ensures market orders can be placed quickly.
3. Low Commissions with benefit of makers’ and takers’ fee
Commissions on future trades are relatively low and are charged when the positions are opened or closed, not to mention that there is advantage of makers’ fees where makers earn the commission from the exchange instead of paying.
4. Fast Money
An investor with good judgment can make quick money in futures because essentially he is trading with many times as much exposure than with normal spot trade. Additionally, prices in the future markets tend to move faster than in the spot market. As futures are highly leveraged, a stop loss strategy is necessary to avoid liquidation when market move in the wrong direction.
5. Benefit of Hedging
Futures are very important vehicles for hedging or managing different kinds of risk. For professional traders, hedging is often used as a tool to guarantee earning by sacrificing lower profit margin.
Qidax’s advices
Futures have great advantages and it is appealing to most investors and traders. However, highly-leveraged positions expose them to greater losses. One should strategize and perform due diligence when it comes to trading futures. Fortunately, Qidax introduces copytrade function in its platform where trade can be executed by following other experts’ order. Copytrade system will be introduced in the next post.
