- Short exposure: Traders can not only profit with “Long” positions (where you make profit if the price of a cryptocurrency increases), they also can profit with “Shorts” by trading a cryptocurrency if the price falls - all with the added benefit of not having to own any of the cryptocurrency in their account.
- Leverage: traders can enter positions that are larger than their account balance. On Binance, perpetual futures contracts can be traded with a leverage that goes up to x125 (so a $100 balance would allow you to trade with $12,500), although the amount of leverage you may use will vary depending on the cryptocurrency to be traded.
- Hedging & risk management: This was the main reason why “Futures” were invented. If you had $10,000 to trade, you might choose to invest long-term in Bitcoin, so you could buy $9000 of Bitcoin and hold it on your account, essentially this is a “Long” position with no leverage and no risk of being “liquidated”. However, as with all cryptocurrencies, stocks, forex and commodities, prices rise and fall daily - no asset will only just go up in value the moment you buy it! With the remaining $1000 of your balance, you could then take advantage of when price declines to “Short” Bitcoin with ten times leverage, effectively giving you a total of $10,000 trading power to “hedge” your “Long” position if the price of Bitcoin falls. This guide is not intended to train users on Hedging & risk management techniques and further reading up on this subject is highly recommended!
WARNING: Leverage Trading is inherently very risky, a mistake or miscalculation can lead in your entire exchange account being “liquidated” and you will potentially lose all the funds you have deposited. Always use a “Stop Loss” to avoid liquidation!
Please be aware that some contracts are “Perpetual” and have no expiry date, this means positions can be left open for as long as you can afford the funding charges, Bitmex differs slightly and if you see contracts with a cryptocurrency ticker, a letter and a number, this means they have a fixed expiry date where the contracts will terminate and your position will be automatically closed, XBTH20 is a bitcoin futures contract that expires 27th March 2020. Having a position automatically closed is not usually a desirable outcome, so please ensure you keep an eye open for this, here is a guide of the contract expiry dates (from the Bitmex website):
More information for Binance Futures can be found here: https://www.binance.vision/economics/what-are-perpetual-futures-contracts
It is strongly recommended that you read the documentation for Futures contracts and type of Leverage on the exchange you will be trading on!
Key information that will help you to trade is the “minimum and maximum position sizes” supported by your exchange as well as how liquidations and margin calls are executed.
Also, when you open leveraged trading positions, your fee is usually a percentage of the entire position size (so if you opened a $1000 position with $100 of your own funds and ten times leverage, the fee is based on the full position size of $1000) - additionally, every 8 hours, exchanges charge you an additional percentage fee for “funding” - this is often calculated using a ratio of traders that are “Long” versus those that are “Short” and dynamically adjusts throughout the day.