What does Futures mean in trading?

. Futures mean in trading means that the Futures market includes its trading and investment complexities, and to know about them, the important points of this issue must be fully investigated.

11/2/20220 min read

There are many methods and strategies to make money in the digital currency market. Futures trades such as scalping trades are considered in the category of popular and of course convenient ways to consider investment approaches. Cryptocurrency traders can better predict their profit horizon by using Futures trading. Futures mean in trading means that the Futures market includes its trading and investment complexities, and to know about them, the important points of this issue must be fully investigated.

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What is a Futures contract?

If we look at the Latin wording of this concept, sometimes instead of the word "Futures Trade" you will come across the word "Futures Contract". Using the word Contract for Future transactions is a complete and concise definition of this trading method; Futures mean in trading is contracts between a buyer and a seller. It is through Futures contracts that you can invest in the Future price of digital currencies. In simpler terms, during a Futures transaction, the buyer agrees to the seller to buy the desired digital currency at a specified time and when the price of that cryptocurrency reaches the agreed figure. Futures mean in trading used to mean buying many commodities including food, oil, and metals. However, the concept of Futures trading has gone beyond commodity markets and reached the world of digital currencies. For example, if a buyer of sugar in the past plans to use the Futures trading method to buy the sugar he/she needs, he/she will agree with the seller that whenever the price of sugar reaches n, he/she will sell x kg of goods to him/her. In the case of investing in digital currencies, due to this method, the same structure of selling goods is going on.

Buyer and seller agreement on Futures transaction

Futures transactions are designed in such a way that the buyer and seller agree to trade a specific amount of digital currencies. A contract concluded between a buyer and a seller in the field of Futures transactions sometimes has an expiration date and a settlement process. Both sides of the transaction must adhere to the agreed terms of the contract so that all terms related to the transaction are fully implemented.

Types of Futures in trading in the digital currency market
· Standard Futures

Standard Futures Contracts are among the most common investment methods. Standard Futures contracts include all aspects of a traditional contract, including expiration and settlement dates. CBOE and CME Group were the first Chicago-based exchanges to launch Bitcoin Futures in December 2017.

· Futures trading with physical delivery

Another type of futures transaction, known as Futures with physical delivery, involves expiring contracts with the physical settlement. The Bakkt entity, which is backed by the New York Stock Exchange (NYSE), unveiled the strategy for the first time. The only difference between this strategy and standard Futures is that the digital currency is delivered to the buyer during the settlement process. In other words, in this transaction, Bitcoins are transferred to those who have made Future transactions with digital currencies on the expiration date of the contract.

· Permanent contracts

This method, known as Perpetual Contracts, is a type of Futures mean in trading that does not have an expiration date. These transactions were initially started by a platform like BitMEX and then accepted by big exchanges like Bubit and Binance

What is the risk in Futures Trading?

Generally, some experts believe that the digital currency market is not mature enough and Futures trading cannot be expected in it; such critics claim that volatility in the price of Bitcoin (BTC) may spread to other parts of the cryptocurrency Futures market. So far, no significant events have been recorded regarding the risk of Futures trading on the platforms attributed to the cryptocurrency world. Many reputable exchanges and platforms, unlike regular exchanges, have very high security and are not subject to hacking and theft of digital assets. For example, it is very easy and convenient to trade digital currency using the Futures method in exchanges such as Kucoin and Bybit. Considering all these important points, the financial risk in the digital currency market, the failure to correctly apply Future trading strategies, as well as the use of levers higher than recommended, are among the risks of using Futures trading.