There are many different techniques and tools for trading cryptocurrencies. Some of them allow you to earn a high income with a small initial amount. How is this possible? The answer is crypto futures and margin trading. This article will help you understand these trading methods and how they differ.
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What are Futures?
In crypto futures trading, two parties agree to buy (or sell) a crypto asset at a specific future date at a pre-agreed price. Participants go either “long” or “short”, i.e., agree to buy or sell the asset. Futures contracts can be perpetual (with no end date). The cryptocurrency exchanges Binance and WhiteBIT, for example, allow this option.
Users borrow cryptocurrencies and use leverage to increase their initial investment. This allows traders to earn higher profits if their trades go well. Both trading methods help to increase the initial investment. Let’s look at the differences between them.
Crypto Futures Trading VS Margin
Here are some differences between these two trading methods:
- In futures trading, participants enter into derivative contracts that belong to the derivatives market. Margin trading is always connected with the spot market.
- Futures trading allows traders to profit from both rising and falling market prices. Margin trading does not offer these opportunities.
- Participation in margin trading involves the use of leverage. Depending on the margin mode used, leverage can be X3, X5, X10. Trading crypto futures allows for higher leverage. For example, on the WhiteBIT exchange, leverage of X20 can be used.
It’s possible to use these financial instruments simultaneously. In the traditional understanding of futures, you buy a contract with the amount you actually hold. When trading futures on margin, you can use leverage to buy a contract for a larger amount. In other words, you buy futures contracts with borrowed money.
Experienced investors often practise this trading mechanism. It is not the best idea to use it for beginners, as it requires a lot of time and practice to understand how it works. If you want to try this type of trading, you are more than welcome to join the WhiteBIT exchange. By signing up for a demo account, you can trade crypto futures and margin trading for as long as you wish without fear of losing your own funds.