In financial markets like cryptocurrency, there are many ways to trade that futures is one of them. This trading method is an agreement between the buyer and the seller to trade a currency in the future at a specified time. In the spot market, you really buy a cryptocurrency as an asset, but in the futures market, there is no buying or selling, and the transaction is just a contract between you and the exchange. In this article, we will explain futures and its trading method in simple language, as well as the very important things you need to trade correctly.
What is futures trading?
In futures trading, you can profit from their price fluctuations without owning currencies. In simple terms, futures is a bet between you and the exchange on the future price of cryptocurrencies. The futures market is a two-sided market, you can profit from both the increase and decrease in the price of cryptocurrencies, and of course, this depends on what position (long or short) you set. For example, if your analysis shows that the price of Bitcoin will increase, you can open a long or bullish position, and if your analysis is correct, you will profit from the increase in the price of this currency, and if your analysis is wrong, you will lose. The use of leverage is also common in this type of transaction, which we will explain in the rest of the article.
This type of transaction has a much higher risk than other transaction methods in the financial markets.
What does mean Leverage?
Leverage allows you to trade with multiples of the amount of money in your wallet. For this reason, if you need to have thousands of dollars in your wallet to buy 1 bitcoin in the spot market, you can open a position on this digital currency with a much lower amount in futures using leverage. In the following, we will explain this issue with a simple example.
For example, leverage x10 will increase your profit and loss by 10 times. Suppose you have analyzed that the price of bitcoin will increase and you have opened a long position on it with the amount of 1000 dollars from your capital and with a leverage of 10. In this case, if the price of Bitcoin increases by 4%, you will earn 40% of your input capital, equivalent to $400. But if your analysis is wrong and the price of Bitcoin decreases by 4%, you will lose 40% of the input capital equal to 400 dollars.
The most important thing is that the profit limit is open and you have no limit on the profit. But your loss is possible to the extent that the amount of loss does not exceed your input capital. That is, in the example above, if Bitcoin drops by 10%, you will lose the $1,000 you placed in the position and become liquid or call margin.
Using leverage in this type of transactions is considered an advantage, which of course increases the risk of the transaction. Leverage can multiply both your profit and loss. For beginners, leverage 3 is enough and they should not risk more than that.
Important point in futures trading
First of all, if you are a beginner and do not have technical and fundamental knowledge about trading in the financial markets, it is better not to go to the futures market at all. But if you have learned the technical analysis of digital currencies and want to make profit from futures transactions, it is better to use leverage 3 to 5 in your positions.
The most important point in trading is to consider the limit of profit and limit of loss. In the following, the best method of determining the limit of profit and loss will be presented to you.
If you want to enter the financial markets and trade. Your loss limit should not be more than 3-6% of your total capital. That is, if you did an analysis on a currency and came to the conclusion that the price will increase and entered a long position, but your analysis was wrong and the price of that currency decreased and you incurred a loss, this loss should not be more than 3-6% of your total capital. be
For example, if your total capital is 1000 dollars and you have set the loss limit for each position at 10%. You should enter a position with an amount equivalent to 300-600 dollars (depending on the confidence level of your analysis), if the price of that currency goes 10% against your analysis and activates your loss limit, you will have an amount of 30-60 dollars, which is equivalent to 3- You will lose 6% of your total capital, which is the best possible situation for trading.
In futures transactions, exchanges have provided you with the possibility to determine the limit of loss and the limit of profit when entering the position, and the transactions that the price of cryptocurrencies reach your loss limit will be closed automatically.
In Dealerify Futures transaction is available by leverage up to 20x. We have implemented this leverage limit to reduce the risk of our users transactions and preserve their capital. Also, the liquidation line is specified for each order in the delivery charts, and users are not allowed to place their stop loss below this area.
For Publishing Futures orders you can go to this link and try it to see how simple it is: