What is Futures Trading?
Derivative trading betting on future prices
Basic Concepts of Futures Trading
Futures Trading is a transaction where you agree to buy or sell an asset at a specific price at a specific point in the future.
In cryptocurrency futures trading, you can bet on price movements without actually holding coins, and use leverage to have large positions with less capital.
Features of Futures Trading
- Two-Way Trading: You can profit from both upward (long) and downward (short) movements.
- Leverage: You can have positions larger than your principal, which amplifies both profits and losses.
- Expiration Date: Perpetual Futures have no expiration date.
- Liquidation: When losses reach a certain level, positions are forcibly liquidated.
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High Profit Potential
You can generate large profits with less capital by using leverage.
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Two-Way Profit
There are profit opportunities in both bull and bear markets.
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Extreme Risk
Leverage can cause losses greater than your principal, and liquidation risk always exists.
Futures Trading Terms
- Long: A position betting on price increase
- Short: A position betting on price decrease
- Leverage: Multiplier of position size relative to principal (e.g., 10x, 20x)
- Margin: Collateral required to maintain a position
- Liquidation Price: Price at which a position is forcibly liquidated
- Forced Liquidation: When losses exceed margin, the position is automatically liquidated
- Perpetual Futures: Futures contract with no expiration date
- Funding Fee: Fee between long/short positions (usually paid every 8 hours)
Important Considerations for Futures Trading
- Liquidation Risk: The higher the leverage, the greater the liquidation risk.
- Stop Loss Required: You must set a stop loss to limit losses.
- Avoid Excessive Leverage: Beginners are recommended to start with low leverage (5x or less).
- Emotion Management: Even when losses occur, you should not trade emotionally.
- Risk Management: You should not invest too much capital at once.