What are futures in simple words.

Cryptocurrency has long gone beyond the risky and electronic currency. Now it is an opportunity to earn quite a lot. Along with this, it is worth studying several additional terms at once (for example, futures trading what is it). It is from understanding how the system works that it depends on how much you can earn and in a short Time.

Understanding, futures trading what is it, it is worth understanding the whole process. After all, each stage can affect earnings and even the risks of losing your funds. Futures themselves are contracts in finance. Specifically in this case, in crypto.

What is a future and how to understand it?

Understanding the nuances, what is a future, you should understand what financial contracts are (the classic version). Futures, what is it, are almost the same, but in the world of cryptocurrency. These are financial contracts that oblige the buyer to buy and the seller to sell a certain asset (for example, a product, currency or financial instrument) in the future at a predetermined price.

If we think about what a future is, in simple terms, then we should definitely use more familiar analogies.

Futures what is it in simple terms:

1. An ordinary farmer sells corn. In the future, he will be able to harvest, and then sell. This is his direct plan.

2. At the time of planting corn, the farmer does not yet know how much he will be able to earn for the future harvest.

3. The farmer tries to protect himself, and therefore he immediately enters into a fixed contract with the buyer. That is, he sells what has not yet grown.

4. The contract already contains a guaranteed price.

In this case, even if the corn grows and becomes more expensive, the farmer will have to sell the crop at a fixed price.

This is a futures contract. A similar principle works in cryptocurrency.

A few more words should be said about the aspects of futures:

1. A contract for the future. Futures are an obligation to buy or sell an asset in the future at a pre-agreed price.

2. Standard terms. Futures contracts are standardized in terms of volume, delivery date, and other conditions. This makes them easy to buy and sell on exchanges.

3. Hedging and speculation.

The last point deserves special attention. Hedging is the use of futures to protect against the risks of price changes. For example, farmers and producers use futures to stabilize income. As for speculation, traders can buy and sell futures without intending to actually receive or deliver the asset. They try to make money on price changes in the future.

If we return to the analogy with the farmer, then even during the period of planting the future crop, the farmer sets the price. Even if by the time the corn is sold, the price will be the same (as it was at the beginning). If the price has risen by the time the corn is sold, it will still have to be sold at a stable price.

Therefore, futures are instruments that allow market participants to protect themselves from the risks of price changes or make money on price changes by concluding contracts to buy or sell assets in the future at a fixed price. This makes futures an important tool for both hedging and speculation.

More about cryptocurrency futures

Cryptocurrency futures trading takes place on specialized exchanges and platforms that provide the opportunity to enter into contracts for the purchase or sale of cryptocurrencies in the future at a predetermined price.

This process is quite simple, but at the same time multi-stage. At the same time, it is quite popular and is used on the market literally every day.

First, you should choose a platform. This is one of the most important steps. You should choose a cryptocurrency exchange that supports futures trading. Popular platforms include Binance, Bybit, BitMEX, OKEx and others. The platform provides many guarantees, and also greatly simplifies the entire process due to its user-friendly interface.

Next, you should go through a fairly quick registration and verification. This entire process already depends on the chosen platform. Some of them do not require verification, although the most popular ones use this method (verification, first of all, protects the user). After registration, you should top up your account. You can top up with cryptocurrency or fiat money, depending on the platform requirements (another nuance to consider when choosing a platform).

Once all these steps are completed, you need to move on to choosing a contract. On the platform, you can select a futures contract that you want to trade. Contracts may differ in terms of expiration, type of cryptocurrency, and other parameters.

What to do next:

1. Select the type of position: long if you expect the price to rise, or short if you expect the price to fall.

2. Specify the number of contracts and the leverage level (if used).

3. Monitor the price movement and manage your position. You can set buy or sell orders, as well as stop-loss and take-profit orders to automatically close the position when certain levels are reached.

4. Close your position manually or wait for the execution of the set orders. Closing the position fixes your profit or loss.

In general, this process becomes quite simple if you try it once.

Features of trading futures in cryptocurrency

Of course, if we discard all analogies, then the cryptocurrency market has a number of its own features. Many platforms offer so-called leverage, which allows you to trade larger amounts than you have in your account.

The platform may require maintaining a certain level of margin. If the balance falls below this level, the platform may force the position to close to prevent additional losses.

Some futures contracts have an expiration date, after which the contract is automatically closed. The period of validity of contracts can be different: monthly, quarterly.