![]() Now, before we dive deeper there’s a crucial point that we must understand about what collateral we use for buying our futures contracts. Now that we have covered what futures trading is and what its benefits and potential risks are, let’s dive deep into understanding how we can trade futures on Binance. That is why it is often recommended that futures should only be traded by those who have a much-informed understanding of the market that they are trading in. And you can lose the same huge amount of capital as well. And if you use margin, then you can potentially make much higher returns off of your initial capital. This can prove to be a helpful strategy in highly-volatile markets such as that cryptocurrencies. If the price of an asset does increase, then you stand to make a profit. One of the biggest benefits of trading futures is that you are able to speculate on the price of assets and open positions accordingly. ![]() Benefits and Potential Risks of Trading Futures However, if you are selling the asset at a predetermined price then you are making a profit from the price fall (going short). If you decide to buy the asset at a predetermined price then you are essentially making a profit from the price rise (going long). Remember that both the buyer and the seller (or two traders in case of assets) are going long on the contract and shorting the contract, respectively. This way, when the price does go up, you can easily sell your asset at a profit - without having to take the delivery of the asset itself (in this case, oil). When the day does come, the seller of the commodity is entitled to sell you the oil at $X/gallon and you are entitled to buy - both the buy and the sell order will be executed regardless of what the price of the commodity is at the time.īut what if I don’t need to buy the oil? You can still enter into a futures contract! Yes, if you think that the price of an asset (in this case, oil) is going to increase you can still decide to enter a futures contract and lock in on a price. You decide to lock in the fuel at $X/gallon to be delivered to you within three months from the date of entering the contract (futures contracts have the dates). To hedge against that potential rise in its price, you decide to get into a futures contract with your supplier. ![]() You have read about the potential rise in fuel prices due to a supply crunch. Let’s assume that you run a fuel station and are in need of oil. They might not need the commodity at that instant, but they can purchase a futures contract to ensure that when they do need it, they are easily able to purchase it at a price of their liking. Since futures help lock in the future price of an asset, they can be helpful for companies that are looking to buy commodities that have a chance of going up in price in the near future. Let us review an example to understand futures trading better. The amount of profit that the trader makes will be calculated at the end of the expiry of the contract. On the other hand, if the price of the asset declines, then the trader can choose to take a short position which would then result in them making a profit. ![]() However, if the asset declines in price, then the trader suffers a loss. If the asset increases in price upon the time of the expiration of the futures contract, the trader is able to make a profit. Thus, for futures, the price at which and the date on which you buy the asset is predetermined.
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