Futures Trading: Types, Mechanics, Effective trading experience

Futures Trading is a term used to refer to a type of binding contract between buyers and sellers in trading an asset at any time in the future. The special feature of this type of contract is that participating individuals are forced to agree to carry out transactions at a set price and time.

If you want to learn more about the term Futures Trading, why not try taking a look at the following content from AZcoin?

What is Futures Trading?

Futures Trading or Futures Contract are terms used to refer to a special type of contract that binds buyers and sellers upon participation. Accordingly, the two parties will jointly choose an appropriate time to carry out the transaction.

If you still don’t see the special feature of this type of contract, it lies in the fact that both the buyer and seller will be forced to carry out the transaction at the selected time. Additionally, the price of the traded asset is also forced to remain the same as agreed, and changes are not allowed.

In other words, by participating in Futures Trading, you are forced to make transactions whether the asset value goes up or down. On the other hand, when you are the seller, you are also forced to sell the asset at the agreed-upon value and are not allowed to cancel, increase, or decrease the value.

How does Futures Trading work?

As mentioned earlier, Futures Trading has a mechanism to act as a binding link between the buying and selling parties. This process begins when the seller wants to lock in the price of the asset to earn more profit and the buyer wants to build a hedge against price increases as the asset grows.

Both parties, when reaching an agreement, hope to implement a Futures Contract at the exchanges, which plays a role in ensuring that the contract is executed on time. When the contract is complete, regardless of the actual price of the asset on the date of the agreement, both parties involved must execute the transaction.

In addition, to ensure Futures Trading operates, the agreement contract must have:

• Contract expiration date.
• Value of assets traded in the contract.
• Leverage is the amount of money that can be borrowed from exchanges to earn higher profits when the contract expires.
• Payments.

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Advantages and Disadvantages of Futures Trading

Advantages

• Allows you to borrow capital from the exchange itself to participate in Futures Trading and earn higher profits than your own capital.
• The payment process only takes place until the contract deadline, helping you limit transaction risks to the maximum.
• The potential to generate profits in the future is very large not only at the present time but also in the future when the contract expires.

Disadvantages

• Investors are required to be equipped with enough knowledge and experience to be able to participate in Futures Trading because this is a type of investment not for novices who are unable to accept risks.
• Borrowing capital from the exchange to create leverage to make a profit, despite its potential, still incurs the risk of loss, causing investors to owe money from the exchange.

How many types of Futures Trading are there?

Because Futures Trading is a term that represents a form of trading, there do not exist many different types or variations. However, you can also view the following two forms of Futures Trading from Binance as two separate versions:

• USDⓈ-M Futures: A form of Futures Trading that uses stablecoins USDT or USDC as collateral, meaning that transactions and profit or loss calculation methods will all be calculated in USD.
• COIN-M Futures: A form of Futures Trading that uses cryptocurrency as collateral. However, these cryptocurrency units will be priced in USD even though transactions and profit or loss calculation methods will be based on mortgaged assets, thereby adding further complexity to the transaction.

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Experience in implementing Futures Trading

Advice from experts for those who want to engage in Futures Trading is:

• Take advantage of technology and support applications as much as possible.
• Develop your own investment method and strategy corresponding to each market moment.
• Learn how to manage and deal with risks that may occur when investing.
• Train your psychology and thoroughly research all information before trading.

Conclusion

Here is all the content that we can synthesize and share with you about the concept of Futures Trading. If you have any other questions, don’t hesitate to contact AZcoin.