crypto trading

What is the Difference Between Margin Trading and Crypto Futures?

The market of digital assets is increasingly volatile, for this industry is yet emerging and unstable. Besides, digital assets are not issued by central banks, and their emission does not depend on governmental decisions. The crypto market is not subject to any central authority that may affect it directly but lives by the laws of supply and demand.

Another reason for the high volatility of digital assets is the news background. Crypto investors are fragile to every news that appears, so they react fast, leaving the market massively or entering it. It makes the market drop or fall.

crypto trading

Crypto rates are changing daily, allowing investors and traders to generate income in this unstable market. There are many methods and strategies to reach success – daily trading, scalping, swing, etc., and tools that allow capitalizing from the small initial investments – margin and futures trading. Indeed, it is possible to make a fortune by having just $100 in your wallet through borrowing funds. How to make it? Let’s discuss these techniques in this article and compare them. So, what are futures in crypto? We will start with futures and move to margin.

What are Futures in Crypto?

Futures trading is a pretty old financial instrument used in traditional markets. It used to be applied for precious metals, gas, oil, grains and other commodities as well as assets. The idea is to predict the further movement of the price and make money on it. The foundation for successful futures trading is thorough analysis and understanding of all peculiarities of the underlying asset.

Trading crypto futures is the riskiest tool among others because the cryptocurrency market is more unstable and volatile than traditional markets, and it is more difficult to predict its next move. Moreover, the market can go up or down unexpectedly if large investors start to buy massively or leave it, artificially changing the game. Trading crypto assets include risk assessment and hedging.

To explain the crypto futures meaning, we would like to give an example. Suppose you believe that the BTC price will grow, and you have some Bitcoins to sell. Your friend thinks the market is about to drop and wants to generate income from it as well.

You:

  • conclude a futures derivative contract where you state that you will sell your Bitcoins on some exact date and at a price you think it will reach by that day (the price and the date are included in the agreement).
  • When the expiration date comes, you check the Bitcoin rate. If it really increases, you sell your BTC at a higher value and make money from it.
  • If your prediction was incorrect, you lose money in the amount of the difference between the former and present rates.

Your friend:

  • sells out his Bitcoins and concludes a BTC futures contract where he claims he will buy Bitcoins at a lower price and on the exact day.
  • When the day comes, your friend looks at the BTC rate. If it is as low as your friend thought, he buys Bitcoins back at a low value. Thus, your friend has the same number of BTC in his wallet plus a profit from selling assets.

So, the cryptocurrency futures market allows investors to make money on both rising and dropping trends. That is the main thing that differentiates this technique from others.

What is Margin Trading?

This tool allows traders to capitalize from a small initial amount. Margin trading is a financial instrument that allows investors to borrow funds and enter the market with a much more profitable position, thus, receiving a higher profit. Margin trading uses the spot market prices. The essence of margin is borrowing funds from a crypto platform. Investors pick the leverage ratio, which is different on different exchanges. For example, on WhiteBIT, you can use up to X20 leverage. So, for instance, having 100 dollars, you can open the position with 1000 dollars using the X10 leverage.

What are the main differences between these two types of trading? Let’s see:

  • Futures contracts belong to the derivative market, while margin is all about trading on the spot.
  • Trading crypto futures is possible on both dropping and rising markets. Margin – only on rising.
  • Using the margin tool, you buy assets here and now. Using futures, you do not purchase coins but buy contracts.

What unites these financial tools is leverage. The leverage ratio is used in both futures and margin trading methods.

What is the Best Crypto Trading Platform for These Types of Trading?

The variety of trading platforms amazes. It might be difficult for a beginner user to pick an exchange that would be convenient on the first try. You may pick among the most popular websites, such as Binance, Coinbase, and WhiteBIT. Being the world’s best crypto exchange, Binance may seem to be somewhat challenging to handle for a novice user.

Try the WhiteBIT platform, for it is very suitable for beginner traders: it allows you to pick an interface and configure tools in it to your liking. Besides, you may try a demo account and practice different trading methods, use the leverage of different sizes and see which ratio is suitable for you, etc. Or maybe you will realize that futures trading is too difficult for you at this stage and try some easier methods such as spot.

Also, WhiteBIT supports perpetual futures contracts due to its financial mechanism. So you do not necessarily have to close your contract and purchase or sell coins when the date of the agreement expires. Depending on where the market moves, you and another party of the agreement may pay each other fees to continue the contact. Such an option is available due to the reserve fund of the WhiteBIT exchange. In perpetual contracts, coin rates are kept closer to the spot market.

If you have any questions, you may always address the WhiteBI customer support and receive assistance and help. To learn more about trading and read the latest news on the crypto industry, welcome to the WhiteBIT blog. It has many interesting articles and guides for you to read and learn how to trade efficiently.

Leave a Reply

Your email address will not be published. Required fields are marked *