Ethereum Futures Explained: Know How To Make Money Through It

Posted 2 years ago in BLOCKCHAIN.

Ethereum Futures Explained: Know How To Make Money Through It

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.

Understanding Ethereum Futures

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.

How Do Ethereum Futures Work?

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.

How is the Value of Ethereum Futures Contract Determined?

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.

How to Have a Profitable Trade in All Market Conditions

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.

Why You Should Trade Ethereum Futures

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.

Risks involved with Ethereum futures trading

 

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.

Tags: Ethereum,
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