Cryptocurrency, Bitcoin and digital assets are denoted as volatile investments. The tactics of cryptocurrency trading is many traders are trying to manage their risk simply by buying an bitcoin, cryptocurrency and digital asset when the price drops or selling it when the price goes up.
The unexpected side of this tactic is that many times your profit money is left on the table after you leave the market. Unfortunately, If the price continues to rise after you sell you are going to missing out on profits you could’ve earned had you left your position open.
But in the key benefit of futures trading is that, you can hedge existing spot positions without additional crypto - allowing you to be agile and prepared for any market environment.
The fine crypto trading solution article for crypto exchange beginners to gather full knowledge about the cryptocurrency trading options like margin trading and future trading.
Let we get into the article by describing the step by step process of crypto trading options in the crypto exchange platform.
Table of Contents:
- 1. What is contract trading?
- 2. How contract trading works?
- 3. How contract trading is more superior than normal trading?
- 4. Benefits of Contract Trading
- 5. Why major exchanges created contract trading like Huobi, Bitmex and bybit?
1. What is cryptocurrency future or contract trading?
Future Trading is also named as contract trading. Futures, or futures contracts, are executed by a contract or agreement to buy or sell a digital asset at a later date for a fixed price. These benefits are typically used by crypto traders as a way to hedge other investments or to lock in profits while trading in volatile crypto markets. The prices for Kraken's futures are based on aggregated indices that represent the demand for each cryptocurrency from a different crypto exchanges, so pricing is always clear and transparent.
2. How does future or contract trading works?
Buyers and sellers are use future or contract trading as a safest way to hedge and minimize risks and protect against volatile future price swings. In most futures contract participants are involved:
- 1. A buyer
- 2. A seller
- 3. An agreed price
- 4. An expiry time
When a buyer accepts to buy a future trading from a seller, both parties will agree on a specific price to confirm the trade. That confirmed price will also be limited by a particular time (or date), where both parties will also agree upon the aforesaid trade.
For example, if the buyer purchased the contract at $100 for a future price of $120 where the closing price became $130 (i.e. the price of the contract at the agreed expiry time), the buyer can get a profit of $30 for the future contract. If, on the other hand, the price closes at $95, then the buyer could attain a loss of $5 on this trade of contract.
The above mentioned rules are also applicable to the seller case that the price fluctuations completely depends on the prices accepted by each of the buyer and seller (This result a profit for one, and a loss for the other).
With speculators, investors, hedgers and others buying and selling daily, there is a lively and relatively liquid market for these contracts.
3. How contract trading is more superior than normal trading?
- 1. Forward contract is an informal contract between the contracting parties whereas futures contract is standardized and according to specifications of futures exchange market.
- 2. There is no specific maturity date and it is as per the forward contract. In futures contract, maturity date is fixed which can be 3rd Wednesday of March, June, September or December.
- 3. All countries’ currencies are included, (especially of developed countries) in the forward contract transactions. But there is a limited to a small number of currencies in futures contract transaction.
- 4. No limit for the value of forward contract transactions. In futures contract, the value of transaction is restricted to Rs. 1 lakh Canadian dollars.
- 5. Prices quoted with difference between buying and selling rates in forward contract. In futures contract, only single price prevails on the exchange floor.
- 6. Forward contract are traded in a secondary market and dealt through banks while the other is a direct exchange market.
- 7. Margin money is very nominal in forward contract while Margin money is fixed by the amount involved in the futures contract.
- 8. No cash flow till delivery in forward contract. Daily settlement will be there in futures contract.
- 9. Swap transactions are allowed in forward contract. Only direct transactions are allowed in futures contract
- 10. There is no guarantor for forward contracts. But Futures exchange market has a guarantor.
- 11. The purpose of forward contract is to prevent loss through hedging. But the Purpose of futures contracts are mainly to have speculative gain.
4. Benefits of Contract Trading Platform
1. Makes to earn more money than you actually have
The core benefit of using contract trading options and other derivatives is leveraged trading. Leverage agrees you to borrow money for trades from others. This future trading that allows for every traders to potentially multiply their gains. The another side to this like profit, that any losses you take will be multiplied as well.
2. Don’t need to buy actual bitcoins
The fact that, in bitcoin future contracts there is no need to buy actual bitcoins which means that any traders don’t have to worry about the reliable and security issues for storing your bitcoin assets. Suppose, If a hacker gains unauthorized access to hack any traders bitcoin wallet and sends the funds somewhere, there’s no way to get those funds back.
3. Future Trading- Faster trades
In normal trading, It takes time for a cryptocurrency exchange network to process each and every transaction. Those transactions in normal trading can be particularly slow and costly when the network is busy. By contrast, In future trading such complicative contract trading are processed immediately.
Such beneficial effects in contract trading cryptocurrency will soon attract more traders for trading, as it allows traders to trade large amounts of an digital asset by only investing small amounts of money. In the case of cryptocurrency futures, traders may get benefit from the changing of actual cryptocurrency price without holding any of such cryptocurrency. This allows traders to keep part of their capital for other investment purposes.
It would believe that contract trading in digital asset futures will help with increasing the efficiency of the cryptocurrency market in the following years.
5. Why major exchanges created contract trading like Huobi, Bitmex and bybit?
- 1. Popular and Large cryptocurrency trading platforms like Bitfinex and BitMEX are founded to start facilitating contract cryptocurrency trading. Bitcoin future trading starts being widely traded in future, alongside many other cryptocurrencies.
- 2. Foreign exchange platforms start adding cryptocurrency to their tradable currency pairs. By popular demand this quickly expands to Litecoin, Ripple, Monero, Dash and many other popular cryptocurrencies.
- 3. CBOE becomes the first traditional exchange to start offering bitcoin futures trading with a self-regulating framework. The launch is opposed by other traditional exchanges which argue that it hasn’t done the necessary risk-prevention legwork.
- 4. Chicago Mercantile Exchange (CME) becomes the second established traditional exchange to trade bitcoin futures.
6. About Coinjoker - Bitcoin Trading Script Solutions
Coinjoker- Cryptocurrency Exchange Development Company offers complete solution to start your cryptocurrency contract or future trading like margin trading and leaverage trading in cryptocurrency exchange platforms. We always focus to concentrate cryptocurrency trading in future trading to build a ways for traders to earn more profit. Even website owners can also yield more profit with respect to the traders so everyone can enjoy with the future trading concept to become billionaire in cryptoexchange businesses.
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