There are many methods to earn using cryptocurrencies – advanced crypto platforms propose many different tools for trading from the easiest to complex.
For example, if you are afraid to risk, you may just buy a crypto asset and hold it for a long time until its price drastically changes for the better (grows). Thus, you receive a profit without much worry and without the need to monitor the market changes 24/7.
However, most trading strategies imply your everyday participation in the process – track the price charts, open and close numerous positions many times a day, or a week, a month.
Some tools allow making passive income when you invest funds and hold them on a crypto exchange, receiving interest for it (it is called staking). One of the riskiest methods is crypto futures.
What Is a Futures Contract?
Futures have been used for oil, gold, and metals for hundred years now. Interestingly, with the emergence of the market of digital assets, they found their place in this field too, and quite successfully. It is an advanced trading strategy that demands deep knowledge and a lot of practice.
It is like price speculations – you suppose the further asset’s rate and “bet” on it.
You actually don’t have to possess the currency but only make a contract on buying it.
The most often used trading futures contracts are made with BTC.
The Principle Of Futures Contract Work
If you ever witnessed how the crypto futures function, you probably did not notice anything special about it – traders open long and short positions. However, futures are not the same as spot trading. You do not necessarily purchase an asset but work with its price.
Example. You are sure that the BTC price will increase and know the appropriate term for this growth. You create a long position for buying BTC on the exact date and at a settled price. If you think the BTC rate will fall, you set a short position.
Then you wait for the contract’s expiration and see if your forecast was correct. If you were right and the BTC price really moved up (down) as you predicted, you get your rewards. If it turns out that you were mistaken, you fail.
There are also contracts with no end date. The same rules work here – you go long or short. The asset’s price is maintained closer to the spot market due to a mechanism of funding that some crypto platforms implement.
In this mechanism, “long” and “short” parties pay fees to each other. The size of fees depends on how the asset’s price behaves related to the rate set in the contract.