1. Leverage
Leverage makes futures trading extremely capital-efficient. With a futures contract, you can open a 1 BTC futures position at a fraction of its market value. Spot trading, on the other hand, does not provide leverage. For example, to purchase 1 BTC in the spot market, you would need thousands of dollars. Assuming you only have 10,000 USDT available, you could only afford to buy 10,000 USDT worth of Bitcoin in this case.
2. Flexibility to Long or Short
If you hold cryptocurrencies in the spot market, you may benefit from capital appreciation as the value of your cryptocurrency rises over time. Futures contracts, on the other hand, allow you to profit from short-term price movements in either direction. Even if the price of Bitcoin falls, you can participate in the downtrend and profit as prices continue to drift lower. Futures contracts can also be used to protect against unexpected risks and extreme price volatility, making them ideal for miners and long-term investors.
3. Liquidity
With trillions of dollars in monthly volume, the crypto futures markets provide deep liquidity. For example, the Bitcoin futures market has an average monthly turnover of $2 trillion, surpassing trading volumes in Bitcoin spot markets. Its robust liquidity promotes price discovery and allows traders to transact in the market quickly and efficiently.
4. Futures vs. Spot prices
Cryptocurrency prices are determined by buyers and sellers through an economic process of supply and demand. The spot price is the ruling price for all transactions in the spot market. The futures price, on the other hand, is based on the prevailing spot price plus the futures premium. The futures premium could be either positive or negative. A positive premium indicates that the futures price is higher than the spot price; conversely, a negative premium indicates that the futures price is lower than the spot price. Changes in supply and demand may cause the future premium to fluctuate.
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The CoinTR Team