The futures market in the crypto industry is a bit easier than the stock markets, but that’s what makes it so attractive. The design approach to the formation of this market reduce all superfluous and outdated foundations, leaving only the essence.
What is the essence of this?
A trader even with minimal trading experience on the spot market will not spend more than a couple of hours to master the futures market. It’s still the “Buy cheap — sell expensive” flow. But here you buy and sell not an asset, but your opinion.
There are always two camps in the futures market, where all traders are divided. A camp for those who are confident in the price rise and a camp for those who are confident in its fall. Futures trading is a kind of dispute, betting first and second. You fix your confidence with a money bet.
Unlike the stock market, here you do not need to choose a specific closing date in advance. You enter a position and can close it immediately, or wait a year.
Let’s take a closer look:
Long and Short positions. When you are sure of the price increase — you enter a long position, a short position will help you to earn on price decrease. For even greater simplicity, we add buy and sell prefixes to their names.
Leverage helps you operate on larger amounts than you havel. In fact, the exchange borrows you money for a specific bet, requiring only a small amount called Margin, which guarantees that the exchange will not lose anything if you lose. The higher the bet, the higher the winnings for the same investment, but also the higher the risk of losing.
Let’s talk a little sad. If you made a mistake in your forecast and the rate went against you — you cannot lose less than the amount you actually paid for this transaction — your Margin. Because the exchange won’t let you lose her money. So every trade has its own Liquidation price, which is the price at which you run out of Margin.
Let’s look at an case:
Using the smart order from Cryptocurrencies.ai we set the parameters of our deal.
Leverage x100, Amount 1 BTC, which is quote coin equivalent (total) at 8000 USDT :)
Thanks to leverage, this transaction will cost us 80 USDT. The liquidation price will be 80 USDT lower than the entry price — 7920 USDT. But we will not wait for liquidation and will set Stop Loss to 7980. Our deal will be closed with only 20 USDT loss. We will also set Take a profit at 50%, then the trade will be automatically closed with a profit of 40 USDT.
You can learn more about how smart order works in an article about it or try it yourself on Cryptocurrencies.ai
If you trade futures with leverage x1, the only difference from spot trading is that the trading fee commission is several times lower.