What Is Crypto Futures Trading? (Bitcoin and Ethereum Shorts and Longs)
3 min read · · Korean original
Contents 4
What is crypto futures trading? How do you open a Bitcoin long or an Ethereum short? Unlike spot trading, futures trading is a derivative product where you bet on the price movements of crypto assets without actually holding the underlying asset. Traders can use stablecoins such as USDT or BUSD to buy derivative contracts like BTC/USDT and ETH/BUSD.
Shorts and Longs Explained
A short (SHORT), also known as short selling, means selling at a high price and buying back at a low price, while a long (LONG), also called going long, is a strategy of buying at a low price and selling at a high price. This lets traders profit no matter which direction an asset moves.
Short and long contracts can be opened on every pair supported by the exchange, including Bitcoin, Ethereum and more. Curious about exactly how to trade futures?
Futures trading is risky, so there are a few important precautions you need to know before you start. Check out the tutorial below.
How to Trade Bitcoin Futures on Binance8 min read
Advantages of Futures Trading
Futures trading is a useful product that lets you speculate on an asset's price changes without holding the underlying asset.
Traders can also protect the value of their assets from price drops through hedging strategies such as a 1x short.
You can also increase capital efficiency through leverage. With 10x leverage, you can hold a position worth $10,000 in assets with just $1,000 of capital.
Disadvantages of Futures Trading
The downside of futures trading is that it is riskier than traditional investment methods such as spot trading. That's why, along with a proper understanding of market mechanics, it's essential to have a risk management strategy in place.
You also need to manage your margin balance carefully to keep your positions open, and understand factors that can affect it, such as funding fees and the mark price.
If you use excessive leverage, even small market movements can cause large losses, and you could even get liquidated, so be careful.
Wrapping Up
Futures trading is a derivative product that lets you speculate on an asset's price movements without holding the underlying asset. However, you can also use crypto derivatives to run hedging strategies that offset declines in the value of your assets.
Futures trading has the advantages of letting you profit from any price movement and offering capital efficiency through leverage. However, it is riskier than conventional investment products, and it's a high-risk derivative that requires a deep understanding of the market along with a proper risk management strategy.
Crypto assets are highly volatile, so it's best to think carefully before you start futures trading. If you're not familiar with futures, don't just jump in. Take a moment to think again about why you really need it. And before you start, be sure to read the beginner's guide to futures trading I wrote.
