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What are Bitcoin Futures?
Bitcoin Futures are nothing but Futures contracts that were built on top of a specific underlying, which in this case is Bitcoin. Bitcoin is the oldest and the largest crypto asset by market capitalization, which is currently at about $550 billion.
Thus, Bitcoin Futures is a derivatives contract that tracks the price of the underlying Bitcoin and gives a way to invest in the crypto asset without actually having to buy the crypto asset. Hence, to simply put, similar to traditional Futures contracts, Bitcoin Futures are legal contracts to buy or sell Bitcoin.
Know More: Bitcoin Price Forecast
How do Bitcoin Futures work?
Like any typical perpetual Futures contract, Bitcoin Futures contracts are issued by crypto exchanges and are offered in the market to be bought or sold. As mentioned earlier, a Futures contract is essentially a derivatives feature, which means that it is a contract that derives value from an underlying asset and not by itself.
Thus, a Bitcoin Futures contract only has value because it is backed by an actual Bitcoin which is maintained by the exchange issuing these contracts. So now that we know it is a derivative product, let us understand how it works.
At any given point in time in the market, there are two kinds of people. One who wants to go short on the asset, believing that the asset will lose value in the near future, and the other who wants to go long on the asset, believing that the asset will gain value in the near future. To offer this facility to these two kinds of people in the market, a Futures contract is opened up, with two positions, one long and one short. This is because, for a Futures contract to be valid, someone has to buy it and at the same time, someone needs to have sold it intending to buy it later to close their position. For example, let us say;
- Person A is long on Bitcoin.
- Person B is short on Bitcoin.
An exchange facilitates these two people to create a position in the market with their respective views. Now, Person A is holding a long position on a Bitcoin Futures Contract. At the same time, Person B is holding a short position on the Bitcoin Futures Contract.
So if this contract has to be closed, both parties on either side of the contract need to close their respective positions in the market. However, there is another thing that can happen, where:
- Person C enters the scene, who is also short on Bitcoin.
- Now, Person B is very convinced about the short position on Bitcoin and wants to exit.
- Person B can close their own short position, while the same short position can be picked up by Person C, thus maintaining balance.
As a thumb rule, it must be understood that the Futures market is a zero-sum game, meaning whenever there is a short position open, there is a long position open somewhere with someone as well. Similarly, whenever one makes a profit in their Futures position, someone else is making an equivalent amount of loss in the opposite position.
This is an over-simplistic explanation of the concept, but overall, the Futures market is one big place where the system needs to be balanced. This balance is what allows the feature of leveraging to be introduced into the system.
Advantages of Bitcoin Futures
Let us look at some of the biggest benefits of trading Bitcoin Futures:
- Simplicity & Convenience: One of the biggest benefits of Bitcoin Futures trading is the simplicity it provides. It provides a means by which you can stay invested in Bitcoin without having to actually own a Bitcoin and think about safely storing it.
- Leverage: Probably one of the biggest and most attractive features provided by Bitcoin Futures is the concept of leverage. Leverage provides a trader with the ability to control a large contract value derived from an underlying asset, which is Bitcoin in this case, with a relatively smaller amount of capital.
- Higher Profit Potential: Understanding the concept mentioned above, leverage is what allows traders to make more profits from speculating with Bitcoin Futures contracts with the limited capital they have, thus making it an extremely attractive option for seasoned traders in the market. CoinDCX Futures provides up to 15x leverage options on Bitcoin Futures.
- Safety: Bitcoin Futures markets also provide a measure of security as it allows for people to have position and price limits in place that enable traders to appropriately build their positions.
- Flexibility: Bitcoin Futures contracts allow traders to be a lot more flexible when it comes to their trading strategies. A trader can choose to go either long or short on the value of the underlying asset and bet in that direction.
- Hedging Tool: Bitcoin Futures can also be used by long-term investors in the crypto markets to limit their downside risk by taking up an opposite position in the Futures market against their actual Bitcoin holdings. This way, the short-term downside risk is reduced, and even make some profit out of it using these Futures contracts.
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Step by Step by Guide to Buy & Sell Bitcoin Futures on CoinDCX
Step 1: Log in or Sign up to your CoinDCX app if you have not already.
Step 2: All users are required to complete their ‘KYC’ (know your customer) procedures and bank account verification by adding their Bank Account Details as per requirements to avail of crypto and INR deposit/withdrawal facilities provided by CoinDCX.
NOTE: To know more about the KYC process, read our detailed FAQs.
Step 3: Head to the Futures Tab on the CoinDCX App. (Make sure you have some funds for the margin requirement. If not, do that first.)
Step 4: Select any pair that you would like to trade from the list of pairs available. For now, let’s take the example of the pair BTC/USDT, being the most traded Futures contract in the crypto Futures market.
Step 5: Click on the chart button to view the price action of the BTC/USDT trading pair displayed for you by the charting platform on the CoinDCX App.
Step 6: Now adjust the leverage as per your risk tolerance. Note that here you can benefit from up to 15x leverage, depending on the trading pair on CoinDCX App. In order words, you can trade up to 15x times more than the funds you have per trade.
Step 7: If you feel that you want to enter right then, you can choose the market order option to choose the closest available price and enter the trade. Alternatively, find the price level you are comfortable with and you can place a number of the various kinds of futures trading orders types by CoinDCX:
Good-Till-Cancel: The order stays active until it’s filled or we cancel it ourselves
Immediate-Or-Cancel: The order will get executed immediately, and if a portion is not filled, it will get canceled immediately
Fill-Or-Kill: Order either gets completely/immediately filled or gets canceled.
Step 8: It is advisable to add stop-loss orders for the trade to ensure that you know how much you are risking in the trade and also to ensure that you are not liquidated if the trade goes in the wrong direction and results in wiping out your trading capital.
Step 9: This is optional, but you can place take-profit orders limit orders on the pair too, so that you can even do some other work and the CoinDCX App will take care of the rest and book your profits when the price of the contract reaches your desired price level.
Read more: Guide to CoinDCX crypto futures app
To conclude, our App provides you the functionality to seamlessly trade or invest through CoinDCX Bitcoin Futures with a multitude of features. Bitcoin Futures are perpetual in nature and thus track the price of the actual underlying asset very closely making it almost equivalent to holding actual Bitcoins without the hassle of holding or storing them.
Still not sure about your basics on Futures Trading? Don’t worry we got your back, read our comprehensive guide on: What is Crypto Futures Trading?
Can you trade Bitcoin Futures?
Yes, you can easily trade in Bitcoin Futures on CoinDCX App. Following a simple set of very intuitive steps, one can get started with trading in Bitcoin Futures very easily and take advantage of the leverage facility.
How does Bitcoin Futures trading work?
Bitcoin Futures work very similarly to a traditional Futures contract whereby one can go long or short on the price of the underlying asset, which is Bitcoin in our current case, and then hold the position taking advantage of leverage provided by Futures.
Are Bitcoin futures risky?
Yes, Bitcoin Futures trading is riskier than the usual Bitcoin trading because Futures provide access to the concept of leverage, which is not understood properly and can result in loss of capital. However, those looking to simply invest in the Bitcoin Futures can take it up using 1x leverage, thus effectively taking up zero leverage risk and the only risk remaining is Bitcoin price volatility.
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