FTX crypto futures
Investing free money aims to maximize returns with the appropriate security. It is challenging to classify speculation in the foreign exchange and stock markets as reliable. But they can provide the highest return of all legal activities. If the money is not invested, it has an inflationary tendency to disappear over time. So you will either have to work with the money or say goodbye to it.
Cryptocurrency futures and options offer traders unique advantages, which explains their growing importance in the trading world. Futures tend to be more profitable; options carry less risk. Which asset you choose depends on your attitude to risk and the question of liquidity.
Let's talk about them one by one. Then, this article will introduce you to FTX cryptocurrency derivatives and the FTX cryptocurrency derivatives trading platform.
What is a futures exchange?
A futures exchange is an exchange on which futures contracts (futures) - contracts for the delivery of exchange-traded commodities or securities in the future - are traded.
"Aristotle's Politics contains one of the earliest written references to futures trading: Thales of Miletus developed "a financial technique which can have the universal application". Based on astronomical data, Thales predicted that the olive crop would be perfect the following autumn.
Confident in his prediction, he made agreements with the oil mill owners in Miletus and Chios and gave them his money in advance to guarantee himself the exclusive right to use their olive presses when the harvest was ripe.
Thales concluded the contracts at low prices, as no one knew whether the harvest would be plentiful or scarce. The owners of the presses were willing to hedge against possible too low revenues. When the harvest was ripe, and the demand for the use of the olive presses far exceeded the supply, Thales was able to sell his contracted rights to use the olive presses at a much higher price, which made him a lot of money.
This is a prime example of how futures contracts and the FTX derivatives trading platform work.
About FTX cryptocurrency derivatives trading platform
FTX is a speedy growing crypto active exchange with permission for spot market trading and a wide assortment of special derivatives and securities.
The platform was founded in 2019, and fast rose to the top in trading volume, earning a high reputation and credibility in the community. FTX allows trading in the most famous cryptocurrencies, such as Bitcoin, Ethereum and Litecoin, and quickly adds earning projects such as DeFi tokens.
FTX was founded by former Jane Street Capital trader Sam Bankman-Fried and former Google developer Gary Wang. Before the exchange, they launched the booming trading firm Alameda Research, which helps FTX maintain a high depth of order books. The lead investor in FTX is another popular exchange, Binance. FTX is being developed under the slogan "from traders for traders".
More on futures
A futures contract is a contract according to which the seller undertakes to deliver the underlying asset to the buyer at an agreed price and date. The buyer is obliged to buy back the subject of the transaction.
An underlying asset is at the heart of any contract, be it a stock, oil, index or gold. Hence there are two types of contracts: delivery contracts and settlement contracts. However, one of the most common and rapidly gaining popularity is FTX cryptocurrency derivatives.
What are clearing and variation margins?
Profit/loss is not accrued/debited at trade closing but during clearing, which takes place twice a day. The clearing is a technical break during which the exchange calculates the financial result of the transaction and either credits or debits the account. The amount received or deducted is called variation margin.
To trade FTX crypto futures in South Africa efficiently and profitably, make sure you understand all the issues involved. By doing so, you will minimise the risk of losing your money. What's more, you increase your chances of earning even more.
A new calculated futures price is fixed during the clearing, from which further profit/loss will be calculated until the next clearing.
Example: You bought futures for crypto-asset "X" with a value of 1,000 at 11:00. By 2 pm, the contract price has risen to 1400, and trading has stopped. The exchange calculates your profit during clearing: 1400 - 1000 = 400. This will be the variation margin that will be credited to your account.
In the stock market, margin uses borrowed funds for transactions. The margin is the collateral deposited in an account before a futures transaction is made in the futures market. Possible daily losses are deducted from this amount. When opening a futures contract, the exchange announces the minimum amount to be deposited in the account. This deposit is called the initial margin. When the contract is liquidated, the initial margin plus or minus any gains or losses arising during the performance of the futures contract is returned to the market participant.
In the futures market, leverage (financial leverage) enables you to control relatively large amounts of money with relatively little capital. In other words, with a relatively small amount of money, you can enter into a severe futures contract which will be worth much more than your initial margin.
The use of leverage is known to be particularly common in the futures market, so even a slight change in the price of futures can translate into huge gains or losses.
Because the initial margin set by the exchange is small relative to the value of the contract, the financial leverage is significant (and that is one reason why the futures market is a lucrative but hazardous business). The smaller the margin relative to the cash value of the futures contract, the greater the leverage. So with an initial margin of $5,000, you can open a long position of $50,000.
What are cryptocurrency options?
In addition to FTX crypto futures trading, you can also trade options.
A cryptocurrency option is a type of derivative contract that gives the buyer the right to buy or sell an asset at a specific price on a specified date. A call option gives you the right to buy; a put option gives you the right to sell.
Options are structured similarly to other derivatives. This enables traders to predict and take advantage of price movements. Cryptocurrency settlement is also available to traders, as is the case with futures contracts.
Participants trade cryptocurrency options because they get a low-risk, low-cost solution. This is especially true when options are compared to perpetual swaps and cryptocurrency futures.
Types of cryptocurrency options
There are two types of options available for your trade:
- Сall - the right to buy the underlying asset;
- Put - the right to sell the underlying asset.
Advantages and disadvantages of futures
- Built-in leverage due to not having to pay the total price of the contract.
- Low commissions.
- Short trading with no restrictions - the broker may not allow short positions in some stocks, but futures are not subject to such restrictions.
- Ability to hedge positions. For instance, if you own shares of "Company X" and expect them to fall but do not want to sell them, you can open a short position on a futures contract on "Company X" shares. Then the profit from the futures trade will offset the losses from the stock's drawdown.
- Futures trading brings both significant returns and huge risks. If you do not use take-profit and stop-loss, there is a chance of losing your deposit.
- You will not be able to "sit out" a loss. If you can wait for the security to grow and make a profit in stocks, the situation is different with futures. First of all, because the contract has a limited "life", and secondly - because of variation margin write-offs: you either have to replenish your account or close your position.
Prices and limits
The balance of supply and demand determines the value of contracts in the futures market. Prices are usually quoted in dollars and cents or per unit of the commodity (ounce of gold, bushel, barrel, index point, percentage, and so on). The price of a futures contract cannot move arbitrarily - there is a minimum step for it. It is set by the exchange and is called a "tick".
For example, the price of a bushel of grain may rise or fall in increments of a quarter of a cent. A futures investor needs to understand how a commodity's minimum price step will affect the value of the contract. For example, if it is a 5000-bushel contract, the minimum price would be $12.50 ($0.0025 × 5000).
To avoid any unfair advantage to certain players, the U.S. Commodity Futures Trading Commission and futures exchanges impose limits on the total amount of contracts or units in which one person can invest. These are known as position limits and are designed to ensure that one person cannot control the market value of a particular commodity.
How to trade cryptocurrency options contracts
- Getting started with FTX cryptocurrency derivatives trading is easy. All you have to do is download the FTX application. Then activate your futures account, find the "Deals" tab and select "Options".
- Make sure you fund your future wallet.
Remember that you can choose a put or a call option. A call is associated with an expectation of growth, while a put is associated with a decline. You can choose either option based on your own preferences and analysis.
- Select the contract size.
- Once you have finished, click on 'Buy Call'. Your USDT premium will then be deducted from your futures wallet.
- You can monitor your open positions in the Positions tab. The time left to expiry is also available here. So, let's assume you want to exit a position. In this case you can select the calculation and close it.
FTX futures and options are complex instruments, and they are mainly for traders who are willing to learn and constantly update their knowledge. These instruments are gaining popularity because of their effectiveness and they give the opportunity to earn money. FTX futures trading without preparation is not a good idea.
It is important to base your predictions on objective analysis, and you cannot predict market movements and volatility, but you can cut your losses.
Sometimes it pays to make sure that you don't look too long and closely at a particular detail. Instead, from time to time you should take a step back and look at the bigger picture. This is why identifying the overall trend will help you understand how to act appropriately.
To start trading FTX derivatives in South Africa, sign up now and get started making money. Believe in your abilities and you will succeed!