Binance Futures: Key Ingredients and your route to profits

There are a few ways to know if a market is going the right way or not. For the crypto market, the decade-long goal has been attaining mass adoption and converting cryptocurrencies – any of them – into daily use currencies people can, and want, to trade with.

It’s been a long way, but over the last year we have seen several things that point towards that goal becoming a reality. One of them is how some of the biggest exchanges in the world, with Binance at the forefront, have started adding services considered common in our fiat economies to their offerings. One of them, perhaps the most interesting of the lot, is that of futures trading.

What is futures trading?

A futures trading is one of the more common ways to trade shares or values in our economy. In a nutshell, a future is a contract signed today that’s supposed to happen sometime later. In it, two people agree on a transaction and set a price for it, but state it won’t be effective until the future.

Why do people trade futures?

The first reason is to have an assurance of a future transaction – for example, a producer may want to sell their products before they’re finished (or at times even started) producing them.

However, when we speak of a “futures market” where people make money, you could see future contracts as bets. Let’s say, for example, that Jerry has 3 Bitcoin. For whatever reason, Jerry feels the market has peaked and will go down. Meanwhile, Anne expects Bitcoin’s value to go up, but she can’t buy it right away.

What happens is that Jerry, who believes the price will go down, and Anne, who expects the opposite, enter a futures contract. In it, Anne agrees to pay Jerry an amount of money (usually the actual going rate) for his Bitcoin, six months from now. Jerry gets the assurance that he’ll be paid current going rates, while Anne gets the assurance that she’ll keep todays rate in a market she expects will go up.

Where’s the catch? How do they make money here?

For Anne, it’s very easy to see how she makes money. She’s paying February rates for a transaction that will take place in August, while her expectation is that by then BTC may have doubled in value. If she’s right, she’ll be paying a pittance for them – and she could well sell those BTC right away when she gets them, obtaining a 100% ROI.

For Jerry it’s more complicated, but the gist is: Jerry doesn’t need to have, or hold onto, those BTC during those six months. As long as Jerry can produce the 3 BTC come August, he’ll be holding up his part of the bargain.

This means that Jerry could sell the BTC today to a third party and then, before the futures contract with Anne is up, buy them again for a fraction of the price -then sell them to Anne for today’s price, essentially double-dipping.

Naturally, there’s no scenario where both Jerry and Anne could win – which is why futures trading is akin to a gamble.

What should I know about trading futures on Binance?

The first thing is that it’s a gamble. As with any investment, don’t use money you can’t afford to lose.
The second is that Binance uses perpetual contracts. These contracts don’t actually have an expiry date – instead, you can decide when to close them.

The third one is that Binance offers leverage for future contracts. You can obtain up to 125x leverage for your futures transaction on BTC/USDT – this means you could open a futures contract worth up to $12,500 with just $100 of your own money. For other pairings, Binance offers up to 75x leverage.

What’s so special about Binance futures?

More than standard futures trading, Binance Futures, with its leverage offering, allows you to short or long your position. What this means is that you can, using leverage, trade far more than you actually own, make money with it, and then pay back Binance and keep the profit (minus the interests.)

This is useful if you think a currency is overvalued and a correction is imminent. In the previous example, where Jerry thought BTC was going to go down, instead of signing a contract with Anne he could have gone to Binance, made an initial investment, and used leverage to purchase BTC. If Jerry had 3BTC, Binance would give him leverage up to 225BTC. Jerry could then trade them for other currencies, USDT included. He then would just have to purchase the 225BTC back once value went down, pay back Binance, and keep the difference.

Once more again, it is risky – if Jerry got the 125x leverage and BTC went up instead of down, he’d end up with a massive debt. But that’s the thing with futures trading and going short or long – it’s very risky, but when it pays off it pays off big.

Should I trade futures on Binance?

That’s up to you. What we can say is that Binance has now made it extremely easy for both newcomers and experienced traders to access a futures market that’s based on cryptocurrencies. However, whether you should jump in – and how – is your decision.

What you should do, however, is make sure you know the market before risking your money. Read. Study. Learn. Then, use hypothetical positions – if you went short today on a $100 initial investment and 125x leverage, how would that hold up a week from now? A month?

Repeat the experiment according to how you think the market will go. And once you’re not bleeding money in hypothetical scenarios, jump into the real thing. Just don’t start trading futures without preparation and prior knowledge and experience – as such a position isn’t likely to end up well.

Making money is possible in today's world using a variety of ways. Futures trading is profitable if you learn the ropes and grow in your trading confidence and dexterity.