Ethereum Futures Explained: Know How To Make Money Through It
Futures trading has grown in acceptance over the years. This is because of the market dynamics and the
"get rich quick" scheme that many projects online. Making money with Futures trading is easy but only
easy when you follow due steps and processes. Participants wouldn't get their hands burnt only if they
take time to understand the basics of futures trading. Futures Trading is flexible and in sections but only
a fraction of this financial world which is the Ethereum futures will be duly highlighted in this article.
The goal of every futures trader is to make money on Ethereum futures. How do you go about making
money in Ethereum futures without losing your head in the process? Understanding the complexity of this
market is what birthed this article and such, key ways on how to make money on Ethereum futures will be
discussed in subsequent subheadings.
As we have established in the introductory phase of this article, Ethereum futures helps traders make
gains in the bull market (when there is an uptrend in price) by going long (making predictions that the
price will go up). Likewise, Ethereum futures give gains to traders in the bear market (when there is a
clear downtrend in price) when they go short (predicting that the price will go down) but in this case,
Ethereum price prediction is their focal point. This means that in Ethereum futures, analysis is made only
around Ethereum. Trades in Ethereum futures have a multiplier that shoots your investment into ample
returns and gains. This multiplier is what is known as leverage. This would be described fully in subsequent paragraphs.
The interesting part of Ethereum futures is the ability to take part in the market on both ends, that is, if the
market goes up, you can join the market and if it goes otherwise, it is still possible to take part unlike
spot trading Ethereum where you can only take part in the market during an uptrend. This means that you
can only buy low and sell high - a one-way path. The ability to join the market at both ends is a tangible
advantage Ethereum futures hold over Ethereum spot trading.
For clearer understanding, say your price prediction of Ethereum in the next one week is an upward
move, you can long the market and vice versa if you think otherwise but in this case, you will short. Apart
from that, perpetual futures contracts are a thing as well. This is because, in Ethereum futures, there is a
set date but in a perpetual futures contract, there is no termination date and trade can be opened for as
long as you want. The only addition to this is that there is a regular charge attached to this and it is calledthe funding rate.
For beginners and newbies who want to take part in Ethereum futures trading, learning the cores of
leverage and price referencing is important if making money in the market is your goal. You will also
need to understand the risk involved in Ethereum futures. This will also be highlighted in the latter part of
this article.
As established earlier, Ethereum futures is a buying and selling agreement of ETH between a seller and
buyer at an agreed price target on a predetermined date. In another development, few futures contract
settlements are done in USD (dollars). This means that at the agreed settlement date, USD is supplied to
the buyer instead of ETH. The USD cost existing between the future price target and the initial price
target is being paid by the seller.
Invariably, if the future price target happens to go lower than the initial contract price, the buyer in this
case has to pay the cost difference to the seller.
A futures contract in its entirety has a simple design but a question that could keep popping in the heads
of traders is, how does the value of a futures contract get determined? This is straightforward in the sense
that there are differences in the data being used by various exchanges.
For instance, some derivatives platforms use a live Ethereum price that is derived from a variety of other
trading platforms like Binance, Coinbase, and so on. The price point of Ethereum derived from these various other exchanges are subjected to price aggregation every 24 hours. This is what is then used forc ontract settlement.
This ultimately means as a trader, you must know the genuinity and stability of the source of price points
for a particular contract. For example, if you use an exchange that is known for speedy crashes, there is a
high tendency for you to experience early liquidation in your contract.
Profits can be made trading Ethereum futures irrespective of the market direction at a given point. This
special characteristic of Ethereum futures trading gives you the ability to delve through different market
conditions for profit. In addition to that, below are some of the ways to have a Profitable Trade in Ethereum futures.
● Hedging Against Price Risk
If you are a market participant who loves to hold, it is possible to reduce the price risk using Ethereum
futures. For instance, if you are holding Ethereum, you can reduce your chances of loss when the bears
take over the market by shorting Ethereum futures. What this does is that it locks the USD value of your
portfolio without having to sell your Ethereum. Understanding hedging can put you ahead of millions of futures traders.
● Understand the use of Leverage
Leveraging Ethereum futures gives you access to large positions greater than your investment. In
Ethereum futures, you can open positions that are 5 times greater than your investment, in this case, you
have employed the 5x leverage.
When a trader uses leverage, their positron size is automatically greater than their investment and as such,
a slight change in market dynamics has a significant effect on the portfolio. This implies a good
understanding of leverage can improve your trading profitability. A typical example is say Mr. John
predicted the price of ETH to move from $1892.92 to $1915.33 and as the market would have it, Mr. John
was right, with a 5x leverage. Mr. John's gain would be +6.25% and without leverage, he would have
+1.25% in gains.
There are infinite number of reasons to trade Ethereum futures but the most important ones are clearly stated below:
● Gains amplification through leverage
As we have established in the previous subheading, leverage increases your profit level, that is, a slight
move on either side of the market has a significant impact on your market gains and hence, gives you
ample returns on investment (ROI).
● Exclusive Access to Market Irrespective of the Market Conditions
With Ethereum futures, you can get in and out of the market Irrespective of the current market conditions,
that is, you can trade in the bull and bear market profitably.
It has been established that leverage trading in futures amplifies your profits. Consequently, there is
another side of this amplification that most traders dislike which is the fact that leverage could also
amplify your losses. Because leverage gives you access to participate in financial markets 30 times
greater than your portfolio balance, a slight change in market dynamics, against you, could also result in
liquidation - loss of investment.
Also, because Ethereum futures are largely dependent on speculation, traders can easily be subjected to
possible losses beyond their capital hence, for market participants who are planning to use leverage, it is
important to study proper risk management techniques like stop loss to further reduce their potential losses.
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