Crypto futures have been on the rise, marking decisively the impending maturity and evolution of the crypto market. Especially following the Covid-19 market collapse, when cryptocurrency derivatives markets have seen a major spike in popularity as speculators attempted to profit on the price and trade volume volatility.
What are they all about? And why are they all the rage?
Crypto futures are essentially derivative products that are a type of contract between two parties to acquire or sell an asset at a predetermined price on a predetermined date. The contract is linked to an underlying, which is a digital token in the case of cryptocurrency futures.
In contrast, a spot market is where commodities, currencies, stocks, and bonds are traded for immediate delivery. To put it another way, cryptocurrencies such as Bitcoin and Ethereum are traded directly between market participants (buyers and sellers). Trading cryptocurrencies on a spot market allows traders to own cryptocurrencies in addition to staking shares to receive economic incentives.
On the other hand, a trader does not own the underlying cryptocurrency when they purchase a futures contract. Instead, they own a contract that binds them to buy or sell a specific cryptocurrency at a particular time in the future. As a result, owning a futures contract provides no economic rewards such as voting or staking.
Delta Exchange, for example, is a choice worthy of consideration if you’re looking to trade innovative derivatives products. From interest rate swaps to calendar spreads, futures, options, robo strategies, and much more. It supports over 70 altcoins with up to 100x leverage with robust liquidity.
Crypto Futures Trading vs. Crypto Spot Trading
Currently, crypto futures trading has captured the increased attention of investors due to the several advantages it has over spot trading. Here are the key differences between both these trading strategies that have enabled investors to prefer crypto futures trading over spot trading.
- Reduced investment capital due to leverage trading
One of the most prominent features of a futures market is the leverage that it offers. In fact, futures trading is extraordinarily capital-efficient due to leverage.
Assume that the price of one bitcoin is $38,000. In a spot market, you’ll need the entire sum to purchase it. A futures contract, on the other hand, allows you to open a BTC futures position for a fraction of the cost. This is made feasible through the use of leverage. As a result, the bigger the leverage, the less money a trader must put into a position.
On the other hand, spot trading does not give leverage; thus, if a trader only has $25,000, they will only get $25,000 worth of Bitcoin. The use of leverage also increases the buying power because, with increased leverage, traders can buy more while reducing their capital investment.
- Flexibility to go long or short
In a spot market, traders can benefit only if the price of a cryptocurrency rises and they cannot profit in a bear market. Futures contracts, conversely, allow traders to profit from short-term price swings regardless of the direction of the market.
They can engage in the downtrend and trade with the momentum even when the price of a coin falls. As a result, crypto futures trading is an excellent way for traders to build sophisticated trading methods such as short-selling, arbitrage, pairs trading, and so on.
- Reduced risk due to increased liquidity
With trillions of dollars in monthly turnover, the futures markets provide an abundance of liquidity. Certainly, a futures market’s high liquidity aids price discovery and allows traders to transact in the market quickly and effectively. In addition to this, increased liquidity poses a reduced risk in a futures market because there is always someone prepared to take the opposing side of a particular transaction, resulting in less slippage for traders.
Liquidity is a critical aspect in determining a futures market’s performance. A futures market must have sufficient buyers and sellers with conflicting pricing goals to ensure a high enough turnover that will allow for the buying and selling of contracts at a moment’s notice without any price distortion.
Additionally, many traders also use futures contracts to safeguard their portfolios from high price volatility and to hedge against downside risk. Futures contracts are also frequently used by miners and long-term investors to protect their portfolios from unanticipated dangers.
Delta Exchange for Crypto Futures Trading
As much as the increased popularity of crypto futures has caused new players to enter the market, they are often confused about which exchange they should choose. This is where Delta Exchange comes in.
With Delta’s ease of use, accessibility, and advanced security features, it is now emerging as a preferred and more profitable choice for both novice and seasoned investors.
Without a doubt, Delta Exchange is your one-stop solution for crypto derivatives trading.
Delta also has impressive offers for both new and existing traders. You can check complete details about existing offers on Delta Exchange here.