WHAT IS FUTURES? STEP BY STEP TUTORIAL ON HOW TO USE LEVERAGE?
Most newcomers to the market wanting to speculate on assets and make money on price fluctuations almost immediately turn their attention to concepts such as futures trading and leverage. Beginners often ask us such questions: what are bitcoin futures; how to trade bitcoin futures; what's leverage trading; how does leverage trading work?
In this article, we will try to answer all these questions and show how to open and use futures positions with trading leverage.
What is bitcoin futures?
Futures are contracts that guarantee that the buyer will buy the asset at a certain time, in the specified amount, at a predetermined price. Such contracts are negotiable and guarantee the performance of the agreement. Simply put, it is a regular asset purchase agreement, but at a fixed price and later.
To better understand what futures are, let's look at some real cases:
Consider the first case on the example of real estate. You intend to buy a house, make a payment, but you do not receive the house immediately - it may not even be built yet. But you will definitely protect yourself from future price increases.
The situation on the stock market is much more unpredictable than in the case of real estate. Asset prices can fluctuate by tens of percent in one day. Therefore, futures are an ideal tool for a large number of companies.
Take, for example, a chain of coffee shops. It needs to constantly buy coffee and other necessary products in large quantities. If the chain bought ingredients at the market price every day, it would be very difficult for it to do business due to sharp price fluctuations. Buying products in the form of futures eliminates this uncertainty, so the company can be sure that everything will be purchased at a fixed price for months and years to come.
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What are the types of futures?
Contracts are divided into two types depending on the nature of the obligations.
Supply futures imply that the contract is based on an asset that must be shipped and paid for after the end of the contract. For example, oil or grain.
Settlement futures can be any assets, including indices, bitcoin, interest rates, anything that cannot be shipped and touched. In the case after the end of the contract is the recalculation of profits and losses.
Using futures, you can use leverage - borrowed funds that increase the purchase or sale of an asset, thereby increasing the amount of potential profit or loss.
How does it work? Let's analyze the conditional situation. After analyzing the Bitcoin chart, I am sure that in the near future the price will rise sharply. At the same time, I have only $ 1,000 in my account, but I want to open a bigger position. So I decided to take the leverage x10, with this my position increased 10 times, from 1 thousand dollars to 10 thousand dollars. The exchange took my $ 1,000 as collateral. In case I am right and the price rises by 1% I will get + 10% to my equity. If the price increases by 10%, I will get + 100% and actually double my capital. That is, out of 1 thousand dollars I will already have 2 thousand dollars. But otherwise when using leverage there is also a big risk, if I'm wrong and the price does not go in my direction, with 10 leverage I will lose 10 times more. If the price drops by 10%, I will get liquidation altogether and my $ 1,000 will turn into zero.
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How to open a futures position with leverage on the Binance exchange?
2. Click the transfer funds button
3. In the field that appears, select the spot account from which we transfer funds to the futures. Next, select the USDT currency and enter the amount of funds you want to transfer.
4. After we have transferred the required amount, go to the futures account, the account button is also at the bottom of the screen.
6. In order to open a position, we choose: type of position (long, short), type of order (limit, market, etc.), the amount for which we want to open a position.
7. For example, I have $ 11 in my account, I chose 10 levers and I want to open a position 8 times bigger than my own capital. I specify the required amount and click the buy button.
8. Scrolling down will be the form of our position and all the detailed information (purchase point, liquidation point, position size, etc.
9. With the help of the lower buttons we can set our stop, take or close the position.
In conclusion, I would like to warn anyone who is just starting to use futures and leverage. Leverage is a good tool to help increase your capital and trading results only if you have a clear profitable trading strategy and strictly adhere to risk management. Otherwise, you will only lose your own money.
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