Futures – What Are They in Trading?

Futures – What Are They in Trading?

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Futures are a convenient tool for short-term trades, primarily for speculation, as they significantly simplify trading. The terms "buy" and "sell" in the context of futures are very conditional, as selling a future does not require owning the underlying asset. A future, as a derivative instrument, does not provide the rights that can be obtained by owning the underlying asset, and therefore cannot be used for long-term investments.

In the classical sense, a future is a contract under which the seller must deliver a product to the buyer after a specified period. The market price of the product may change by that time, but under the future, it will remain the same. Thus, if the product's price increases during the term of the future, the buyer benefits because they receive it at a price lower than the market value. If the price decreases, then the future is advantageous for the seller.

Futures are a convenient tool for short-term trades, primarily for speculation, as they significantly simplify trading. The terms «buy» and «sell» in the context of futures are very conditional, as selling a future does not require owning the underlying asset. A future, as a derivative instrument, does not provide the rights that can be obtained by owning the underlying asset, and therefore cannot be used for long-term investments.

Futures in the cryptocurrency market do not imply ownership of a particular coin, so they cannot be withdrawn outside of an exchange. When trading futures, you make a forecast on price increase (long position) or price decrease (short position) considering available leverage. 

When trading on the futures market, users pay commissions to exchanges for using borrowed funds, and funding may also be deducted from their accounts. Funding refers to a fee to cover the price difference between cryptocurrency on the spot market and its futures. If there are many long traders in the market, they pay funding to short traders. If sellers dominate the market, then exchanges deduct funding from them to support buyers.  

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