How to open futures trading account with Bybit?

What is cryptocurrency futures trading and how does it work?

Learn about Bybit cryptocurrency futures trading here.

Crypto futures trading

Among the various financial contracts used for cryptocurrency investments, futures trading is certainly the most famous and advantageous way.

Extremely complex tool that if used correctly will offer countless investment opportunities much more advantageous than other tools such as spot and options trading.

In this article we will analyze each of its features in detail, such as opening long and short positions, the various types of futures contracts, advantages and risks.

By definition, futures trading is a financial contract that allows you to speculate on the price fluctuations of a given asset without actually owning it. As with most financial instruments such as stocks or commodities, crypto futures also allow traders to bet on future price swings.

To date, bitcoin futures trading is undoubtedly the most popular futures contract among the various types of cryptocurrencies in existence.

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But how does futures trading actually work?

Cryptocurrency futures trading to an inexperienced eye does not seem to have obvious differences compared to ordinary trading since the basic structure is practically the same, i.e. opening long and short positions and having well-developed risk management.

Nevertheless, the structure of futures contracts is very different from the more ordinary trading spot given the fact that they do not involve trading on the underlying assets but only on the fluctuations of their prices.

By not trading with the underlying assets, futures can be handled by traders more easily and with extreme fluidity, plus they offer margin trading and the use of high leverage.

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Futures contracts

By definition, futures are an integral part of a wide range of instruments known as derivatives such as Contracts for Difference (CFDs), Options and Swaps.

They are traded on strictly regulated markets through which the parties undertake to buy or sell a specific financial or real asset (underlying asset) at a previously set price and at a specific future date.

Simplifying the concept, futures can be defined as an agreement between buyer and seller for the purchase and sale of an asset (including cryptocurrencies) at a predetermined price and time.

The contract tracks an underlying asset of any instrument such as commodities, stocks and cryptocurrencies. It is a real bet on price fluctuations.

At first, futures contracts were mainly used for trading most commodities such as food, oil and metals. But as the years went by and the markets evolved, they extended their dominance by conquering most of the financial markets.

Even today, a large portion of the price quotes with monthly expiration on raw materials, which can be viewed on the main financial portals, concern futures.

Let’s come to the practical example, if you believe that Bitcoin (BTC) will increase in price by the end of the month, you will need to open a long position on the cryptocurrency by purchasing a Bitcoin futures contract with a monthly expiry.

Once the contract is in place, you will be obliged to purchase the cryptocurrency at the end of the month.

If in this period the cryptocurrency has increased in price, the trader will be satisfied.

I purchase a $ 100 Bitcoin futures contract with a monthly maturity.
The price during the period increases to $ 200.
At the expiration of the contract the trader will pay the sum of $ 100.
Consequently earning $ 100.

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Normally the conditions of use of futures contracts provide for an expiration date, but as regards cryptocurrencies there is a sub-category of contracts called “perpetual” that have no expiration date despite having the same structural characteristics of an ordinary futures contract.

In summary, a trader can hold a position for as long as he wants.

At the time of the exchange in most cases the price of perpetual futures is not very different from the spot price and the mechanism by which the perpetual price is kept close to the underlying is as follows.

In the event the perpetual futures are traded at a price higher than the spot, then the funding rate will be positive, but if they are trading below the spot, then it will be negative.

The funding rate plays a key role, where long and short are regularly paid according to market fluctuations.

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Types of crypto futures contracts

Traders have the option of being able to opt for various types of crypto futures contracts for their investments.

But despite this we would like to clarify that not all trading platforms offer the full range of existing contracts, so the trader will have to carefully evaluate which instrument can be considered most suitable for their needs.

Crypto futures contracts are as follows:

Standard Futures Contracts.: Standard crypto futures contracts have the same characteristics as futures contracts used in traditional markets, including maturity and settlement. The first exchanges to launch this type of contract are CME Group and CBOE, based in Chicago, which have been offering contracts on Bitcoin since 2017. This was one of the main factors that drove the price of Bitcoin to exorbitant values, reaching $ 20,000 in 2020. To date CME Group such as Bybit, FTX, Deribit and Binance, offers standard crypto futures contracts, most of them with quarterly maturity and currency in US dollar.
Futures with physical delivery.: Another interesting type of crypto futures contract are futures with physical delivery. Launched by Bakkt, an entity backed by Intercontinental Exchange (ICE). The main difference with standard contracts relates to the actual delivery of the cryptocurrency purchased during the settlement process. Bakkt offers exchanges only in Bitcoin, which means that when the contract expires, Bitcoin will actually be transferred to the buyer. This maneuver is aimed at expanding the circulation of the virtual currency.
Perpetual Contracts: Perpetuals are arguably the most popular crypto futures contracts among traders. Having no expiration date, they have had some success on BitMEX, Bybit, FTX and Binance. The mechanism that allows perpetual contracts to have a very similar price to the spot price concerns financing. A positive funding rate means that those who open a long position pay the shorts, while a negative rate means that the shorts pay the longs, thus motivating investors (both long and short) to bring the value back to the spot price. With Bybit, loan payments are made in a time limit of eight hours and exchanges take place in USDT currency and other stablecoins.

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Differences and similarities between crypto futures and commodities

The structure of Bitcoin futures contracts does not differ much from traditional financial markets.

In fact, to confirm what has just been mentioned, the US Commodity Futures Trading Commission (CFTC) states that Bitcoin must be considered as a commodity having in fact the same trading characteristics.

Later you will be able to learn about the main similarities and differences between crypto futures and commodities.

Similarities: The main characteristic that the two instruments have in common is that they both do not involve the underlying assets in the transactions, but only their prices. In addition to this in both financial markets there are futures that share similar characteristics such as expiration date and settlement.
Differences: There are cryptocurrency futures contracts that have different basic characteristics than commodity futures.

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Futures and options, what makes them different?

Options and futures are financial contracts that are very similar to each other, in fact both are structured in such a way as to allow traders to buy or sell an underlying asset in a predetermined time and price.

But what fundamentally makes them different is the owner’s right of withdrawal.

Futures: Futures are negotiable contracts that allow the purchase (long position) or sale (short position) of a specific underlying asset at a predetermined price and date. The parties to the contract (buyer and seller) have opposing views on how the value of the underlying will change in the markets. Consequently, a buyer will find profit when the value of the underlying increases and a loss if it decreases. By opening a long position by trading futures the trader believes that the price of the underlying will rise.
Options: Options are a type of derivative that gives the trader the right, but not the obligation (hence the name “option”) to carry out trading operations on an underlying instrument at a predetermined price and date. The main difference with other derivative contracts lies in the trader’s right of withdrawal, who is not obliged to buy or sell the underlying asset. He will be able to carry out any operation he deems right to make an effective profit.

We would like to remind you that Bybit offers traders the opportunity to invest in both futures and options contracts.

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What are the advantages of futures trading?

Investing through crypto futures contracts has quickly become an extremely popular financial instrument among traders around the world.

Here are the main advantages of using this tool.

Affordable: A type of contract that is easily accessible even for novice traders as it is less complicated than ordinary cryptocurrency trading which requires access to an extremely volatile market and a secure digital wallet.
A high potential profit: By investing in crypto futures with the use of leverage, the potential profits soar. With Bybit the trader has the possibility to take advantage of a leverage up to a max of 100: 1. This means that it is possible, for example, to open a position of $ 1000 by investing only $ 10. But it must be remembered that leverage increases not only the potential gains but also the risks of loss.
Flexible strategies.: Developing accurate strategies is much easier and more profitable in crypto futures trading than in ordinary cryptocurrency investments, more often than not when it comes to day trading. In addition, crypto futures allow you to go short without any limitations, this feature allows you to implement a greater number of strategies thereby maximizing the probability of profit.
No funding rates.: A notable difference between standard futures versus perpetual futures is that futures have no financing rate, and prices in most cases occur in contango (futures price of an underlying instrument higher than the current spot price). This specific feature creates an opportunity known as cash and carry arbitrage. An accurate market-neutral strategy that intertwines a long position in the spot market and a short position in the futures. At the expiry of the contract, the price of the futures crosses the price of the spot market, creating gains without the presence of any risk deriving from market conditions or volatility.

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Risks in investing in futures

There are experts who are adamant that the underlying cryptocurrency market is not yet ready for futures contracts trading, as they argue that the extreme instability of Bitcoin could spread like wildfire to the remaining parts of the futures market. But to date, no irreparable incidents have been recorded on cryptocurrency platforms, given the fact that most of them are protected from possible hacking attacks, unlike ordinary crypto exchanges.

The real risks in crypto futures trading come from high market volatility, inaccurate strategies handled by traditional markets without any updates, and dangerously too high leverage that attracts most beginners.

Investing in futures contracts with Bybit will be a simple and safe experience for traders, suitable for both experienced and novice traders eager for low-risk investments.

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Know before investing in crypto futures

Each financial instrument has its own characteristics and based on these the trader can choose the one that best suits his needs. Futures contracts are no exception, and present key aspects that are extremely important for the trader and his potential investments.

Financial leverage.: Financial lava is the primary tool used in margin trading. Currently offered by most of the brokerage firms present in the world. This tool allows traders to increase both investment volume and potential profits. But leverage is not without risk, the higher the leverage offered, the higher the level of risk of losses. Although most cryptocurrency investments offer a maximum leverage of up to 50 times, Bybit has leverage of up to 100: 1 on perpetual futures. Carefully evaluate how much you can afford to invest and lose! Novice traders should act cautiously and avoid exploiting financial levers that are too high.
Carefully evaluate the liquidity of the asset.: In order to determine the effective integrity of the market, each trader must carefully examine the liquidity of the asset, the speed of transactions, the fluidity of the market. A scrupulous analysis necessary to be able to trade your asset as quickly as possible with the least possible price slippage. In order to be able to trace the actual liquidity when trading futures it will be necessary to take into account three main parameters: assets, stock exchange and market liquidity. Each investor will have to carefully ascertain whether there are enough sellers, buyers, producers, the actual state of the asset and the market in which they want to operate. The liquidity of crypto futures markets is usually higher than in spot crypto exchanges, this is because most futures contracts are settled in cash.
Coverage.: Many traders take advantage of futures contracts to implement strategies with the intent of protecting themselves from traditional assets or from an alleged decline in the cryptocurrency itself. In fact, futures contracts have a predetermined date and price that do not expose to too many risks deriving from price fluctuations.
Diversification of investments.: Diversifying your portfolio is undoubtedly one of the most effective techniques for discreet management of your investments. Cryptocurrency futures can be considered as a valid tool to diversify your capital, having the ability to open multiple positions in Bitcoin (BTC), Ethereum (ETH), Chainlink (LINK) and many other tokens with the aim of creating a diversified portfolio. By taking advantage of this methodology, the trader will reduce the risks deriving from the investments on a single asset that could suddenly decrease in price.
Market volatility.: Certainly one of the main characteristics of crypto trading and consequently of futures trading is the extreme market volatility. Although viewed primarily as a source of risk, the high volatility could be extremely beneficial for traders who invest in rapid price swings in the short term. The cryptocurrency market is still constantly evolving, not yet comparable to traditional markets such as stocks or forex. As a result, virtual currencies are subject to sudden fluctuations caused by countless factors.
Expiry date.: Let’s assume that a trader decides to invest using standard cash-settled cryptocurrency futures. In this case he will have to pay particular attention to the expiry date of the contract. For greater control over their investment, the trader will be able to view their futures contract at any time before the expiration date and record gains or losses that depend on fluctuations in the spot price.

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How to invest in cryptocurrency futures

Futures contracts are an investment tool like many others, with the sole objective of receiving a profit and the percentage of risk varies as the set financial leverage varies. To have a balanced management of his investments on spot markets or other derivatives, the trader should pay particular attention to the risks to be run and constantly looking for the best entry and exit points.

Below we will list simple steps to start investing in cryptocurrencies in complete autonomy.

Manage your funds carefully.: Any trader, whether novice or professional, should have proper and prudent risk management and not invest more than they can afford to lose. Never use borrowed money for investments unless it comes from trading on margin.
Time is money.: In order for cryptocurrency trading to be profitable, it should not be understood as a pastime but as a real profession aiming at a considerable profit. The secret lies in the commitment, dedicating time to trading on futures assiduously, to gain experience and learn new techniques to find the best entry points and carefully check the open positions.
Trading demo.: Beginners eager to invest and learn without losing money, can take advantage of virtual funds by opening a demo account with Bybit.
Choose a futures trading platform.: A reliable platform is essential for cryptocurrency trading. Any beginner should opt for a safe bag and start with small investments to test the market.

Any trader interested in cryptocurrency investments could opt for futures trading, a suitable financial instrument for those who want to trade in cryptocurrencies but without worrying about the risks of owning digital wallets. In addition, crypto futures allow traders a number of accurate strategies and other very profitable trades that can be used in spot markets including short selling and scalping.

Is crypto futures trading actually profitable?

Crypto trading is full of profitable opportunities, and proper risk management is the key to making more profits. But every investor must consider that any form of trading involves choices that will not always lead to a profit. The constant commitment, updating daily, always keeping your investments under control, evaluating with accuracy will considerably increase the chances of profit.