futures

Forward contracts, also known as futures contracts, are financial instruments that define the terms of a future transaction, such as price and date of asset delivery. They are often used in trading cryptocurrencies, where investors can speculate on digital currency price changes without the need to physically own them.

How do futures contracts work?

In futures transactions, two parties, called counterparties, engage in a contract in which they commit to buying or selling specific cryptocurrencies at a predetermined price and date in the future. Futures contracts allow investors to profit from the difference between the price at which they entered into the contract and the market price at the time of its realization.

Advantages of futures contracts

Futures contracts have several advantages, such as enabling portfolio hedging against the risks associated with cryptocurrency price fluctuations. Moreover, through leverage, investors can reduce the required own capital, increasing potential profits. Futures contracts also provide easy access to various assets, allowing for portfolio diversification.

Risks associated with futures contracts

Despite numerous benefits, futures contracts also involve certain risks. High financial leverage can lead to rapid losses if an investor misses market price changes. Additionally, speculating in the cryptocurrency market always carries the risk of capital loss, thus it is important to have a thorough understanding of the functioning principles of futures contracts before entering into them.

Given the dynamic development of the cryptocurrency market, futures contracts are becoming an increasingly popular investment instrument, attracting both experienced traders and novice investors. They make it possible to profit from the volatility of digital assets prices and hedge portfolios against unfavorable market movements.