In the modern world, cryptocurrencies hold a significant place, offering investors and traders unique opportunities. One of the popular tools in this sphere is crypto futures, which allow traders to enter into contracts to buy or sell an asset in the future. In this article, we will discuss what crypto futures are, how they work, and why they are becoming increasingly popular among users.

What Are Crypto Futures?

Crypto futures are financial contracts that enable traders to buy or sell a certain amount of cryptocurrency in the future at a predetermined price. These contracts allow speculation on the price change of an asset without owning it physically.
The first futures contracts for digital assets appeared in December 2017 on the Chicago Mercantile Exchange (CME Group), allowing traders to open positions on the decline of Bitcoin (BTC). BTC contracts quickly became the most popular tool among traders, as evidenced by their daily trading volumes, which far exceed those of spot trading.

Key Terms to Know:

• Futures Contract: An agreement obligating the purchase or sale of an asset at a fixed price in the future.

• Underlying Asset: The cryptocurrency or token on which the futures contract is based. The underlying asset determines the value and conditions of the futures agreement. Examples include Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and other cryptocurrencies.

• Long: A position to buy a futures contract, anticipating the asset's price will rise.

• Short: A position to sell a futures contract, anticipating the asset's price will fall.

• Spot Price: The current market price of the asset.
  Margin: A deposit required to open a position.

• Leverage: Using borrowed funds to increase the position size on a futures contract, allowing the trader to trade larger volumes than their own funds.

• Liquidation: The forced closure of a position by the exchange if there are insufficient funds in the margin account to maintain open positions.

• Funding Rate: The interest rate set for perpetual futures contracts and periodically paid between traders holding long and short positions. It is calculated based on the difference between the perpetual contract price and the spot price of the underlying asset.

• Funding: The actual process of paying or receiving funds between traders based on the funding rate. If the funding rate is positive, long position traders pay short position traders. If negative, short position traders pay long position traders.

• Hedging: A way to protect investments from losses. For example, if you own bitcoins and fear their price might drop, you can sell bitcoin futures contracts. If the price indeed falls, you lose on your bitcoins but gain on the futures, offsetting your losses.

How Do Futures Work?

Futures come in two types: term and perpetual.
Term Futures: These have a set execution date and are divided into settlement and delivery contracts.
Delivery Futures: These involve the delivery of the asset at a specified time and fixed price. The contract has a delivery date with a fixed price. If the seller fails to provide the asset on time, the exchange imposes a penalty on the seller.

Example: A trader buys a futures contract for 150 shares of company X at $50 per share. On the contract's execution date, the trader receives 150 shares at $50 each.

Settlement Futures: These do not require the delivery of the underlying asset. Instead, the exchange or broker calculates the difference between the purchase price of the futures and its price at the time of execution.

Example: a trader buys a 1 BTC futures contract at $15,000 for 1 month. After a month, the price of BTC reaches $17,000, and the trader makes a profit of $2,000. If the price drops to $13,000, the trader loses $2,000

Perpetual Futures: Similar to traditional futures but without an expiration date. Trading these contracts can continue indefinitely. Profit is generated from the difference between the entry and exit price of the position. Additional income can come from funding rate payments, calculated every 8 hours for all open positions.

Example: A trader expects the price of BTC to drop and opens a short position on 1 BTC. Another trader expects the price to rise and opens a long position. Every 8 hours, the exchange calculates the difference between the contract price and the spot price of the asset. Traders make or receive payments based on their position and the price movement direction.

Differences Between Futures, Spot, and Margin Trading

Spot Trading: Involves the immediate execution of transactions at the current market price. The buyer purchases the asset immediately, paying its full value. This type of trading is simple and transparent but limits the ability to use borrowed funds.

Margin Trading: Allows traders to borrow funds to increase their trading position, enhancing potential profit and risk. Traders can use leverage to increase trading volumes, requiring strict risk control.

Futures Trading: Enables contracts to buy or sell assets in the future at a predetermined price, offering several advantages:

• Flexibility: Contracts can be made on any asset – cryptocurrencies, gold, oil, etc.

• 24/7 Trading: Perpetual futures trade 24/7, giving traders great freedom.

• Minimal Requirements: The threshold for opening positions is low.

• Leverage: Ability to earn on borrowed funds.

• Hedging: Diversification of the portfolio and protection of open positions from market fluctuations.

• Profit in Any Market Condition: Traders can profit from both rising and falling markets.

However, futures trading has its drawbacks:

• Contract Obligations: When entering into futures contracts, the trader is obligated to fulfill the contract terms upon expiration, including legal, financial, and other conditions set in the contract.

1. Legal Obligations: The trader must comply with all legal norms and regulations related to futures trading, which may include reporting, adhering to exchange rules, and meeting all requirements set by regulatory authorities.

2. Financial Obligations: Upon expiration of the contract, the trader must fulfill financial obligations, which may include paying the difference between the initial and final asset price. If the contract involves physical delivery, the trader must ensure the transfer or receipt of the appropriate volume of the asset.

3. Other Contract Conditions: These may include additional terms such as the method of settlement, timing of obligations, and penalties for non-compliance.

• High volatility: Price fluctuations can lead to significant losses.

• Difficulty in forecasting: Difficulty predicting future prices, the cryptocurrency market is often subject to unpredictable changes that make forecasting difficult and increase the risk of wrong decisions.

• Margin call risk: Need to deposit additional funds if market moves against you, if the price goes against your position you may need more capital to maintain your open positions.

Futures Trading on WhiteBIT

WhiteBIT offers unique conditions for futures trading, with perpetual futures available on various trading pairs settled in USDT. The exchange provides a wide range of leverage options, including 20x, 50x, and 100x. When a user sees leverage of 2x, 5x, or 10x, it indicates the ratio of their funds to borrowed funds. For example, with 2x leverage, they trade in a 1:2 ratio, meaning the exchange lends twice the initial amount.

Example: A user has 10 USDT and wants to buy BTC. At a price of 1 BTC = 10,000 USDT, they can buy 0.001 BTC. But with 100x leverage, their funds increase to 1,000 USDT, and they can buy 0.1 BTC. Thus, leverage significantly enhances trading capabilities but requires careful risk management.

Advantages of Futures Trading on WhiteBIT:

• Low Fees: 0.035% for takers and 0.01% for makers.

• High Leverage: Adjustable up to 100x.

• Minimum Contract Amount: Only 5.05 USDT.

• Security: The exchange has passed a cybersecurity audit by Hacken.io and ranks among the safest crypto exchanges worldwide according to the CER.Live certification program.

In the last two months, WhiteBIT has added pairs such as TAO-PERP, OM-PERP, AVAIL-PERP, HTM-PERP, and PYTH-PERP, providing traders more options for strategies and assets. Additionally, WhiteBIT regularly holds various activities and trading tournaments. Recently, the Mega Futures Battle Trading Competition allowed participants to compete for rewards and enhance their skills, making trading even more engaging.

Conclusion

Cryptocurrency futures are a powerful tool for traders who want to profit from the price changes of digital assets. Effective use of this tool requires a rational approach and market understanding. Traders who make decisions based on sound strategies have a better chance of success, while actions based on emotions and luck often lead to losses.

Many platforms today enable futures trading, offering traders the opportunity to choose the most favorable conditions. Choosing a reliable platform is key to successful trading. For example, the WhiteBIT platform, ranking among the best cryptocurrency exchanges by CER.live, offers a wide selection of contracts, low fees, and high security standards. Regularly monitoring ratings and choosing proven and transparent companies help traders minimize risks and enhance trading efficiency.

The main points to keep in mind are financial goals, risk consideration, choosing a trading strategy, and updating knowledge in a timely manner.

*The material is not financial advice. Always conduct your own research before making investment/trading decisions.