What Exactly is BTC Futures Trading? (No Hidden Shill Content In Article)

3 Minute Read

(What does futures even mean? It sounds serious).

Perpetuals, derivatives or futures crypto trading are just fancy words for trading crypto. In the financial industry, we all like important and useless words that make us feel special. I think these monikers were made up to so that when we talk to clients about their hard earned money, it makes us sound like we know what we are doing.

You can also trade futures (derivatives) on other things like stocks, cattle, pigs, barley, rice, concrete, orange juice, fuel, weather, palm oil, nickel pig iron, cheese, wine, freight, hog slaughter spreads and really any product or situation you can think of. (And yes btw these are real).

Here is futures trading defined;
In futures trading-all you have to do is guess if a product value is going to go up or down.
That's it. It's really just that.

And like in virtually any trading market really, all you have to do if guess if a product value is going to go up or down and bet (trade) accordingly on your projection.

In crypto futures price up= a long trade. price down=short trade. All are bets on what will happen next-in the future. It's that simple. Futures trading is speculation. But really so is all trading. We are all speculating on the value result in the future. Derivatives is for the most part the same thing but with a different title. The product you are trading just derives its value from its underlying market. Derivatives is really just Futures and vice versa. And there is no need to over complicate this. All you have to do is trade it.

Lets look at Bitcoin as a futures trade. As an example-in perpetual futures/derivatives crypto trading or whatever they are called, you are not actually trading the Bitcoin but are trading an actual contract between BTC and a complimenting product like USDT, USDC, USD. This contract is between you and your exchange. And you actually own this contract (and its' rights) from when you open to when you close your trade. When you close, the contract is closed and the financial settlement occurs instantly. Most but not all of these contracts are perpetual so that would be Perpetual Futures. The contract never expires. This contract would then be called "BTC/USDT-P. The structure of these contracts allows us to do things like take a short trade or a long trade or use leverage/margin to increase a position size. So to trade BTC Futures, all you do is pick if the price is going to go up-or down later. You pick what price you will exit at. And poof-you are a futures trader. Side Note: On some exchanges like Coinbase you will find futures with contracts that last for a set period of time. But that is a completely different ball of wax and would really start us down the road of discussing Options Trading so lets save this for later. The point is-of the hundreds of crypto exchanges we trade with, we are almost always going to be trading a perpetual contract which means we never even have to think about this ever again.

What about Spot Trading Crypto? Futures trading is much different than spot crypto trading. In spot trading, there is no such thing as a short and leverage is very rare. There can be no short because there is no contract for a secondary asset (like USDT) to counter balance or offset things like a falling price. In spot you are not trading a contract but are actually buying and taking custody (kind of) of the crypto and then selling it at a loss or profit. Or HODL.

Hopefully, this covers it all. My goal is to take less than 5 minutes to help traders understand subjects without having to spend hours searching the web for answer salads.

Series7Trader

Not financial advice.