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Understand the risks and rewards of the negotiation of cryptocurrencies
The world of cryptocurrency has experienced rapid growth and volatility in the last decade, and prices fluctuate greatly from one day to another. As a result, many people have resorted to futures trade as a way to capitalize on this trend. But before starting to operate, it is essential to understand the risks and rewards involved in cryptocurrency futures markets.
What are cryptocurrency futures?
Cryptocurrency futures are contracts that allow merchants to buy or sell cryptocurrencies at a default price on a specific date in the future. They are essentially options for the future, where the buyer and the seller agree a fixed price for a cryptocurrency over a certain period of time. This market is often known as the “spot” or “during the night”.
Types of cryptocurrency futures
There are two main types of cryptocurrency futures:
- Based on point
: These contracts are resolved immediately, which means that they have no expiration date and the buyer and the seller agree a fixed price for a specific day.
- Based on futures : These contracts are resolved after the specified period has elapsed (for example, 10 days or 30 days). This type of contract is often used to protect against the volatility of the potential market.
Risks in the trade of cryptocurrency futures
While futures trade can be lucrative, it also carries significant risks. These are some of the main concerns:
- Market volatility : cryptocurrency prices can fluctuate quickly and unpredictably, which makes it difficult for merchants to predict price movements.
- LEADING
: Most cryptocurrency futures contracts imply leverage, which means that a small margin is required (generally 5-20 times the initial deposit) to control a large position. This can amplify profits but also increases potential losses.
- Risk of counterpart : In the futures markets based on points, there is no counterpart part to resolve the contract. If a party will breach, they will be responsible for paying the other party, which can lead to significant losses.
- Liquidity risks : Cryptocurrency markets are often illegid, which makes it difficult to enter or get out of positions quickly and efficiently.
- Regulatory uncertainty : The regulatory environment surrounding the trade of cryptocurrency futures continues to evolve, which can create uncertainty for merchants.
Rewards in the trade of cryptocurrency futures
Despite the risks, there are many rewards in the trade of cryptocurrency futures:
- Liquidity : As mentioned above, liquidity plays a crucial role in futures markets, providing access to large amounts of buyers and vendors.
- Potential for high yields : Successful merchants can obtain high yields of their investments due to rapid price movements that occur in these markets.
- Coverage opportunities : The futures trade allows people to protect against possible market recession or other risks when blocking in positions at a fixed price.
- Diversification : Cryptocurrency trade as future offers diversification opportunities, which allows merchants to assign their capital in multiple kinds of assets.
How to start with the cryptocurrency futures trade
If you are interested in negotiating cryptocurrency futures, here are some steps to start:
- Open a brokerage account : Find a good -reputable online brokerage company that offers cryptocurrency futures trade.
- Family with the market : Learn about the different types of cryptocurrency futures contracts, their underlying assets and market analysis tools.
- Set your risk tolerance : Determine how much risk is willing to assume and establish your suspensions accordingly.
- Develop a negotiation plan : Create a negotiation plan that describes its investment objectives, risk management strategies and entry and exit criteria.