Introduction to Futures Trading
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What is futures trading?
A futures contract is a type of virtual assets derivatives. By definition, futures contract traders agree to transact a predetermined amount of a certain commodity at a prespecified price at a specific future time. Based on their judgment of the markets, investors can choose to long or short futures products to profit from up or down markets.
The innate flexibility of virtual assets futures means that any price fluctuations can be monetized for profits. Additionally, traders can use leverage in futures trading to magnify their profits in futures trading. In a portfolio, futures is also a powerful instrument for arbitraging and hedging spot positions.
How to use futures to realize your trading purposes?
1. Hedge risks. Traders can use futures contracts to hedge against the depreciation risk of their spot assets in volatile markets.
As an example, let's say you own 1 BTC, so you can short BTC futures contract equivalent to 1 BTC to mitigate the risks of possible BTC price declines. In this way, you not only needn't worry about asset depreciation but also can gain profits using leverage.
2. Trade with leverage. Traders can utilize leverage in futures trading to scale up profits.
In an opposite scenario, if you forecast a rise in BTC price and wishes to gain more than what your 1 BTC can offer you, then you may use your 1 BTC as the collateral asset to open long BTC futures contracts with 1x-200x leverage. If the BTC price does rise, then you can gain double profits from both the spot asset and the futures position.