Futures trading is a common pick for traders who want to trade on the price movement of a financial asset in the future (such as a stock, commodity, or even crypto asset). However, it is also quite risky because it requires the usage of a margin.
Futures traders decide the price they want to buy for the asset in the future when they enter into a futures contract. As a result, for futures, the price and date at which you purchase the asset are predetermined. Users will find it quite simple to switch when necessary because Binance Futures took care to make the trading experience as comparable to their spot exchange as feasible. This and other factors contributed to its success in becoming the top futures trading platform.
Advantages and Risks of Trading Futures
One of the major advantages of trading futures is the ability to speculatively open positions based on asset prices. You could benefit financially if an asset’s price does climb. In extremely volatile markets like those of cryptocurrencies, this can prove to be a useful tactic.
However, there is also the opposite. Margin usage is necessary for futures. Additionally, if you leverage margin, you may be able to generate even bigger profits on your initial investment. Additionally, you risk losing the same enormous sum of money. For this reason, it is frequently advised that only those with a thorough grasp of the market can trade futures.
How Do You Trade Futures On Binance?
You must register for a Binance account in order to trade on Binance Futures. Although the procedure is straightforward, you will need to undergo identification verification due to Binance’s KYC regulations.You may find information on how to sign up and deposit in our earlier tutorial article for Binance accounts.
You will need to transfer the funds to your futures trading wallet when they have been deposited. You can find your wallet in the upper right area of the navigation menu. Select your futures account from the drop-down menu by hovering your cursor over it. Once there, you will notice the following:
Additionally, you will have to decide if you want to trade on the USD- or cryptocurrency-denominated futures platform. Users who don’t want exposure to stablecoins will find it quite convenient that Binance has added the possibility to trade cryptocurrency-denominated futures.
USD Denominated (USD-S)
The futures contracts in this place are settled in stablecoins, as the title suggests. This means that you will incur losses or gain profits in stablecoins.
Crypto Denominated (Coin-M)
Here, cryptocurrency is used to settle the futures contracts. This implies that you will monitor your losses or gain your profits in cryptocurrency. The underlying currency you will use is Bitcoin.
We will use the USD-denominated futures that are settled in Tether for the purposes of this guide (USDT). When you have funds in your account, you can begin trading. The overall interface looks as follows:
Understanding Futures Leverage
Leverage allows you to take a “x” times position on your assets, therefore if you choose 5x leverage, you can establish a position worth $20,000 on a $4,000 collateral. If the market goes in your favor, you’ll end up with 5x earnings.
However, if the market is not in your favor, you may also lose equal proportions. When using leverage, keep in mind that the amount of leverage you apply can substantially magnify both your earnings and losses. Binance futures allows you to trade with up to 125x leverage.
Isolated and Cross Margin Modes
You have the choice of cross margin or isolated margin for Binance futures. For the former, positions on all of the various futures contracts you have purchased are funded using the deposited collateral. The isolated margin mode, on the other hand, uses the deposited collateral to fund particular positions that you open.
Let’s go deeper into navigating through the procedures required in actually trading futures on Binance now that we have gone over the initial settings for futures trading.
Trading Ethereum Futures on Binance Futures: How to Do It
You can resume trading on the futures trading screen as soon as you transfer some funds from your spot account to your futures account. Putting the required price in the ”Price” and “Size” tab as shown below will allow us to purchase the futures contract for that price.
The next step is to create a sell/short order or to buy the contract. If you choose to short Ethereum, for example, you can place a buy order for a price that is lower than the current price. You will be able to sell it in this situation for, let’s say, $2,000 and then purchase Ethereum again for $1,500. (when the market falls). This will enable you to earn a $500 profit.
Trailing Stop Order
When you want to lock in your profits as the price of the contract climbs, a trailing stop is an useful solution. It aids in securing your profit as the price rises at a specific “Callback rate.” It does not, however, operate in the reverse direction, so if the price starts to decline, your position is effectively closed at the market price.
After opening your position, all of these orders function as expected. The “TP/SL” (Take profit/Stop loss) option is available right here if you’d like to specify the upper and lower limits at which you take profits and stop losing.
Let’s say we bought 1 ETH for $2000. Our position will be sold and we will make a profit of $500 if we set the “Take Profit” limit at $2500. On the other hand, since we’ve set the “Stop Loss” limit at $1500, if the price drops below $2000 to, say, $1500, then our trade will suffer a $500 loss. Futures trading demands for a high level of technical understanding, a thorough awareness of the market, as well as active market participation.
Binance’s Forced Liquidations
Liquidation is the process of offloading cryptocurrency holdings for cash in order to reduce losses in the case of a market crash. The forced closing of a trader’s position as a result of a partial or complete loss of the trader’s initial margin is the most common application of the term “liquidation” in the cryptocurrency market. When traders lack the capital to maintain the open position, this occurs.
The key message is that, while larger leverage can potentially result in greater profits when a trade is successful, it only takes a slight downward price movement to result in a liquidation event. For instance, a price decline of 2% is all it takes for a trade position with 50x leverage to start the liquidation process.
Funding rates in Binance Futures
Traders who are long pay for short positions when the funding rate is positive since the perpetual contract’s price is higher than its mark price. On the other hand, a negative funding rate means that perpetual prices are below the mark price and that short positions are making money off of long positions.
A fixed amount of interest must be paid to the short sellers if you decide to long an asset. known as funding, this interest has a payment requirement of every eight hours. It typically costs 0.01%. When deciding whether to go long or short, keep this in mind.
Futures trading is risky due to the complexity involved. Before you start trading crypto futures, you should have a basic understanding of derivatives. This is so that you can determine a successful plan for yourself by using traditional information to help you comprehend how futures trading actually operates. But keep in mind that the cryptocurrency market is quite unstable. Therefore, trading futures has both the potential for big profits and substantial losses.
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