Crypto futures are contracts representing the value of a certain cryptocurrency. When you trade on a futures market and buy a futures contract, you do not possess the cryptocurrency associated with it. Instead, you own a contract proving you have agreed to buy or sell a particular cryptocurrency at a later date.
If you have a futures contract, you can open a 1 BTC futures position at a portion of its market value. The contracts allow you to profit from short-term price movements regardless of the movement direction. Even if the BTC price goes down, you can participate in the downtrend and get profit as prices continue to go lower. The contracts can also be used to secure your funds against unexpected risks and extreme price volatility.
Short and long positions in Futures Trading.
To go short when trading futures means speculating that an asset’s price will drop. You will make profits if the price falls during the period of the contract, and you close your position on time. Therefore, such a position is called a “short position”. The profit which may be derived from a trade is usually based on the total size of the price reduction. Opening a short position can also be referred to as being bearish on an asset.
Going long when trading futures means speculating that an asset’s price will increase. You make a profit from a trade if your assumption on the direction of the price is accurate. Opening a “long position” can also be referred to as being bullish on an asset.
The price of the futures is based on the prevailing spot price and the futures premium. A positive premium shows that the futures price is higher than the spot price and a negative premium in its turn shows that the futures price is lower than the spot one. The premium will change in case of any supply and demand fluctuations.
Perpetual futures contracts.
The main difference between a perpetual futures contract and a standard one is that the former doesn’t have an expiration date. Therefore, a trader can hold a position for as long as they like. Aside from that, the trading of perpetual contracts is based on an underlying Index Price. The Index Price is calculated in accordance with an average price of an asset which is determined by major spot markets and their trading volumes.
Perpetual contracts, as opposed to traditional futures, are often traded at the prices equivalent or extremely close to the prices on spot markets. However, the asset price may differ from the spot market price in exceptional market situations.