Ether Futures: What are they?
Ether futures are legal agreements to buy or sell Ether at a future date. They are based on the second-largest cryptocurrency in the world, Ether. Futures contracts are contracts representing Ether, and when the contract is exercised, Ether (or cash) will be settled.
The functions of ether futures
In addition to protecting investors against price changes in Ether, Ether futures offer investors a way to speculate on the asset’s underlying trend. To put it simply, if you expect Ether prices to rise, you can buy Ether futures (go long). When prices fall, you take a short position to minimize losses.
Ethereum futures: how do they work?
Futures contracts are agreements where a buyer and seller agree to purchase, and a seller agrees to sell, an underlying asset (in this case, Ether) at a predetermined price on a predetermined date.
Additionally, some futures contracts will track the price of ETH but settle in dollars. In this case, instead of providing ETH to the buyer, the seller will have to pay the difference between the contract price and settlement price.
In the same way, if the settlement price is lower than the original contract price, the buyer is obligated to cover the difference and pay the seller according to the original contract price.
Risks involved with Ethereum futures trading
Even though the option of leverage can be seen as one of the biggest advantages of the ETH Futures Trading market, for novice traders, it can be a trap, because it can make a novice trader take positions that go well beyond their financial means (40-50 times over their actual balance), which can result in their position, or even their entire account, being liquidated as a result.
Furthermore, since Ethereum Futures Trading contracts, by and large, are driven by a high degree of speculation, it is possible for individuals to sustain heavy losses that can, at times, outweigh their initial capital. The danger lies in their design and utility, not the contracts themselves, even though they are not risky in and of themselves.
Therefore, if people are looking to deal with leverage margins of such a magnitude, it could be beneficial for them to learn financial management techniques such as stop-loss orders to limit their potential losses if they are dealing with such leverage margins.
The benefits of trading ether futures
Leverage
It allows you to gain significant exposure to Ether with only a fraction of the total cost, and you can leverage small price movements to create profits that justify the time and effort you put into it.
Flexibility
The non-Ether holders will be able to speculate on Ether’s price and make quick profits. They can open a position in an Ether futures contract with USDT and the profits made will be settled in USDT.
Portfolio Diversification
A trader can use a variety of trading strategies to generate more profits. Traders can now develop sophisticated trading strategies, such as short selling, arbitrage, pairs trading, etc., to generate more profits.
Liquidity
There are trillions of dollars worth of trading volume on the ether futures market. This is a noteworthy fact because liquid markets are much less risky for traders since they can enter and exit their positions easily.
Examining Ethereum futures contracts in more detail
An Ethereum future is a financial instrument that lets you speculate on the price of Ethereum at a future point. In other words, if you buy ETH long and the market closes at or above the price stipulated in the futures contract, you will make a profit. Conversely, if you sell ETH short, you will profit from a price decrease.
The price of Ethereum futures contracts is affected by changes in the price of its underlying asset, ETH, and as a consequence is affected by changes in the price of its underlying asset.