The way Bitcoin can be traded has evolved over the years; from simple buying and selling on a peer-to-peer basis, to trading on large crypto exchanges. Now you can even engage Bitcoin without ever even owning it. Sound strange?
In this article, we will take a comprehensive look at Bitcoin Futures, how they work, why people trade them, and how to get started.
The basics of Bitcoin futures
Bitcoin futures are futures contracts that allow you to trade Bitcoin without actually owning any. It is very different from spot trading where you hold the coin.
Bitcoin futures enable you to make predictions on the price movement of Bitcoin and hedge against risks. This method of trading means you’re investing in price directions rather than the asset itself.
While trading bitcoin futures, you can decide to go short or go long. Going long means you expect an upward movement in the price of bitcoin. On the other hand, going short means you expect a downward movement of the price.
To gauge the direction of the market, it helps if you master indicators to perform technical analysis. Popular technical indicators include Elliot Wave, Stochastic, CCI, breakout, cup and handle and pivot points.
Using these tools, you will be able to generate signals both by reading the price charts as well as taking a closer look at the order book. Who knows, you might spot a crypto whale lurking in the deep end.
Trading with leverage
One special feature of Bitcoin Futures is that they can be traded with high leverage. Leverage, in this sense, means that you do not have to put up 100% of the trades’ value amount when entering into a contract. Instead, you would be required to deposit an initial margin amount, which consists of just a fraction of the total contract value.
Leveraged trading allows you to enter large contracts with little capital while managing risks.
Perpetual futures contracts
While there are many different types of futures contracts, here we want to focus specifically on perpetual futures contracts. These are contracts that do not expire. Traders who go long or short with perpetual contracts can hold a position for as long as they like, unless they get liquidated – meaning they run a loss that is equal to the actual amount they put into the trade.
The pricing of bitcoin in perpetual futures contracts is based on an index. The index price is based on the average price of bitcoin, across multiple spot markets.
Bitcoin futures have become an extremely popular trading instrument. Futures contracts have opened the doors to more traditional investors who may not be ready to allocate funds to the asset itself, but who still want to benefit from its attractive price action.
To get started with Bitcoin futures trading, you will need to find an exchange that lists futures contracts. AAX, allows you to trade bitcoin futures in a compliant and secure environment.