What is a futures contract?

A futures contract — also simply called ‘futures’ — can be an exciting way to trade but can also be complex for new traders. Unlike with spot trading on the Huobi Global exchange, you do not necessarily own tokens in futures contracts. Instead, you use tokens like USDT or BTC as collateral to effectively open a trade on the price of a particular token.
Futures is a financial instrument and legal agreement that obligates a trader to buy or sell a contract at a pre-determined price on a pre-determined date. In other words, if you are the buyer in a token futures contract, you are obligated to buy and receive the specified token amount when the contract expires.
Conversely, if you are a seller in the contract, you are obligated to provide and deliver the specified token amount by the expiration date.
Read the following lessons for more beginner futures trading knowledge:
A futures contract enables you to profit by anticipating whether a token will go long (increase in price) or short (decrease in price). This means you should open a long position if you anticipate a rise in the token’s price, and open a short position if you anticipate a fall in its price. Futures are also used in risk management strategies to minimize risks.
While futures trading is considered risky and predicting price movements is complex, opening a trade is a simple process that can be completed with a couple of clicks on Huobi Berjangka.
To open a futures contract, you need to specify the number of tokens you want to buy or sell, along with the price, as well as the time when the tokens will change ownership. Settlement of the contract occurs when it reaches the pre-specified expiration date.
The party who holds the futures contract on the expiration date must buy or sell tokens for the pre-determined price. Even though you can hold futures until they expire, it is common to instead buy or sell the contract before the expiration date.
It is also essential to know what to do when you want to leave the position. The following are the three main actions you can use for exiting futures positions, in order of popularity:
1. Off-setting: Closing a position and creating another contract of equal value and size.
2. Roll-over: Extending a position before the contract is over. This can be done by first off-setting the position, then opening a new futures contract of the same size but with an expiration date set further in the future.
3. Waiting for the expiration date and contract settlement: There is a legal obligation at settlement for all parties involved to exchange their tokens according to their futures contract position.
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