Futures Trading: An Inside Look at the Most Powerful Crypto Futures Trading Bot
Back in October 2017, Bitcoin really started to shine in the mainstream financial world when the CME Group, which is at the forefront of the derivatives market, rolled out the option to trade in Bitcoin futures.
Fast forward to four years later, and ProShares stepped up to the plate, launching the very first Bitcoin ETF based on those futures contracts. This was a big deal— it was the first time a crypto ETF got the thumbs up for trading on a major U.S. exchange.
Thinking about diving into crypto futures too? We don’t blame you — they’re a pretty cool way to play the crypto market game and give your crypto portfolio a bit of a safety net.
But, before you jump in, let us walk you through how they tick and what to watch out for.
Table of Contents
What Is Future Trading in Crypto?
A crypto futures contract is basically a promise to buy or sell a digital asset at a predetermined price at a specific point in the future. It’s a nifty tool that traders and investors use to shield themselves from the wild swings in asset prices that could happen down the line. Besides offering a hedge against fluctuating prices, futures are a playground for those looking to make a buck through speculation or arbitrage.
In the nuts and bolts of a futures contract, you’ll find several important details laid out, such as the asset in question, how big the contract is, how it’ll settle (either with the actual asset changing hands or just cash), price and position limits, the total value of the contract based on current prices, and the smallest price change it can make, known as a ‘tick’. Each futures contract has an expiration date, and managing this end date is a crucial part of a futures trader’s strategy.
There are three main strategies when it comes to the expiration of futures:
- The most popular strategy is to close out the position before the contract expires. This is done by making an opposing trade of the same size, effectively cancelling out the original position.
- If a trader wants to keep their position beyond the expiration date, they can ‘roll it over’ by closing the current contract and opening a new one for a future month.
- If a trader doesn’t offset or roll over their position, the contract will go to settlement, and if they’re short, they’ll have to deliver the asset as per the contract’s terms.
But here’s an interesting twist: most crypto futures on exchanges these days are ‘perpetual’, meaning they don’t have an expiration date. These perpetual futures are all about betting whether the price will go up or down from where it is right now. On regulated exchanges like the Chicago Board Options Exchange (Cboe), however, they keep it old-school with traditional dated futures contracts.
Crypto Future Trading Example
So, with a regular old futures contract, you’re agreeing to buy or sell your bitcoin at a set price in the future, say $50,000 in six months. But the actual price of bitcoin right now, known as the “spot price,” can be different. This difference can make the value of your futures contract bob up and down, which is super appealing for folks who like to speculate. As the expiration date of a futures contract approaches, the futures price usually moves closer to the spot price, ensuring the two prices don’t stray too far from each other.
Now, when it comes to perpetual contracts, they too have a set value like traditional futures, but they don’t have an expiration date. This means traders can hold onto a perpetual contract for as long as they want. But to keep the party fair, there’s got to be a way to make sure the price of the perpetual contract doesn’t drift too far away from the actual market price of Bitcoin. And here’s where it gets clever: perpetual contracts use a neat trick called the “funding rate” to stay close to the spot price. This way, traders can keep on trading, riding the waves of market prices without ever having to worry about a closing bell. Unless, of course, they face liquidation, but that’s a whole different ball game.
What Is Liquidation in Crypto Futures?
Alright, so when you hear “liquidation,” you might think it’s about turning investments into cash—which usually sounds like a good thing. But when we’re talking about futures trading, liquidation is more like a storm cloud you want to steer clear of.
Here’s the deal: if you’re trading with leverage, it’s like the exchange is spotting you some extra cash to boost your buying power. But the exchange isn’t just being generous; they’re also covering their own backs. They set a limit to how much they’ll let you lose before they step in. Because let’s face it, the futures market can be a wild ride, with prices that can jump or plummet suddenly, risking more than you have.
If your losses dip below a certain point—called the maintenance margin—the exchange won’t just tap you on the shoulder; they’ll shut down your trade to prevent further damage. Unfortunately, this often means your invested capital says “bye-bye” and you’re left with empty pockets.
How quickly this happens depends on how bold you were with your leverage. If you were cautious and used less leverage, you’ll have more wiggle room, and small market dips won’t knock you out so fast. But if you went big and used a lot of leverage, your liquidation point is much closer. A sharp move in the market could mean you hit the red zone and face hefty losses in the blink of an eye. So, the less leverage you use, the more breathing space you have before facing a potential liquidation.
What Is a Future Trading Platform in Crypto?
A futures trading platform in the crypto world is essentially an online marketplace where traders can dive into the future prices of cryptocurrencies.
Here’s how it works: these platforms offer what’s known as futures contracts. These contracts are agreements to buy or sell a particular amount of a cryptocurrency at a predetermined price at a specified time in the future. The beauty of it is you don’t have to own the actual cryptocurrency right now. You’re just locking in a price for a future transaction.
What Is the Best Future Trading Strategy in Crypto?
Crypto futures trading is now available across a wide array of leading exchanges, including Binance, Gate.io, KuCoin, Bybit, among others. You can trade crypto futures on each of those individually, or you can connect your exchange accounts to a third-party cryptocurrency aggregator such as Bitsgap and manage all your trades under one roof — convenience at it’s finest. Currently, Bitsgap offers connections to the spot markets of over 15 different exchanges. When it comes to futures, Binance Futures is the sole option available through Bitsgap for now. But hold tight, because there’s more on the way! OKX futures integration is just around the corner, and for those eager for a KuCoin futures bot, it’s in the pipeline and should be arriving soon. So hop on board with Bitsgap today, give demo futures trading a whirl to get the hang of it, and stay tuned for the addition of more exchanges coming your way.