So, you’ve been hearing a lot about cryptocurrency and want to try your hand at it. The only thing holding you back is that you have never done it before. So, here’s a cryptocurrency futures trading 101 to get you started.
What Are Cryptocurrency Futures?
Crypto futures is an exposure in the underlying cryptocurrency without actually holding it. It is similar to a futures contract in commodities or stocks. The contract has a date by which you can square off your position at a lower or higher price than your investment.
You can buy or sell the contract at a specific price and then square off your position when you see that you are making a profit. If you don’t square off the contract, it will expire at the end date, and the price on that date will be the amount you receive.
Who Should Invest In It?
Cryptocurrency futures trading is ideal for traders who want to speculate in cryptocurrency, but are reluctant to hold the currency. It is also a good diversification option for investors looking at optimizing their portfolio risk. For day traders, crypto futures allow hedging.
Do I Have To Own The Currency to Trade in It?
The one thing holding you back from crypto futures trading is that you don’t want to own. Don’t worry, because you can invest in crypto futures using dollars, and when you square off your position, you will receive the money in dollars. Trading does not require you to own the currency, just like you don’t need to own a particular commodity when you trade in its futures contract.
On Which Exchange Can I Trade?
The exchanges that allow crypto futures trading are the Chicago Mercantile Exchange (CME), Chicago Board Options Exchange (CBOE), and Intercontinental Exchange are a few of them. You can find a reliable exchange after checking its reputation, liquidity, security, and technology.
What Is The Difference Between Contract Expiration And Contract Settlement?
The contract expiration date is the last day of the contract when it will expire regardless of your squaring off your position or not. When the contract expires, you will receive the price of the contract on that day. A settlement is when you want to take delivery of the cryptocurrency. You can opt for a settlement any time before the expiration of the contract. You will need a crypto wallet to take delivery of the currency.
Do I Need A Crypto Wallet to Trade in Futures?
You do not need a crypto wallet for Cryptocurrency futures trading. Crypto futures is a better option as it offers several benefits. You don’t have to own the underlying currency. The Commodity Futures Trading Commission regulates trading, thus increases investor confidence, and the prices are quoted in USD. The contracts are listed for six months in the future and two additional Decembers. Settlement may be daily or monthly and in cash.
I Heard That Cryptocurrency Is Extremely Volatile. Is It True?
Cryptocurrency is like any other speculative commodity. Prices shift based on demand and supply, but unexpected events can cause volatility. One advantage of trading in crypto futures is that it stabilizes the price throughout the contract, thus reducing your exposure. Since the contract is dated in the future, your investment is safeguarded from adverse price swings.
What Is The Contract Size?
The contract size can vary based on the currency and the exchange that you trade. For example, a CBOE Bitcoin future will contain one Bitcoin. The contract’s price will be settled based on the Gemini crypto auction price of Bitcoins on that day.
Cryptocurrency futures trading has become a popular trading and investment tool for those looking to speculate in this particular asset class. This should have prepared you to trade in crypto futures like a pro. So, good luck with your trading.