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Understanding Futures Trading

Brief explanation of Futures contracts

Harriet avatar
Written by Harriet
Updated over a month ago

What is Futures Trading?

Futures are an agreement to buy or sell an underlying asset at a predetermined price on a specific future date. Unlike spot trading, where assets are bought and sold for immediate delivery, futures trading is traded on exchanges and offers leverage. This dynamic market allows traders to speculate on price movements or hedge against potential price changes.

Key Terms in Futures Trading

  • Long Position (Long)

    A long position is when a trader buys a futures contract, speculating that the price of the underlying asset will increase. Profits are made if the price increases, while losses occur if the price declines.

  • Short Position (Short)

    A short position is when a trader sells a futures contract, speculating that the price of the underlying asset will decrease. If the price drops, the trader can buy back the contract at a lower price, securing a profit.

  • Multipliers

    A multiplier is a leverage which determines how much a trader earns or loses for every point the underlying asset's price moves. The higher the value, the greater the risk.

    For example, if a multiplier is x10 and the price moves by 1 unit, the profit or loss would be 10 units.

  • Close position

    Closing a position refers to ending an open trade by performing the opposite action:

    For a long position, closing means selling the contract.

    For a short position, closing means buying back the contract.

    • Take Profit at Price

    This is an automatic action that closes a position when the underlying asset reaches a specific price, ensuring a predetermined profit.

    • Take Profit at Profit

    A specified profit amount where your position will be automatically closed once this profit is achieved. It allows you to secure the gains once a specific profit target is hit.

    • Close Bet at Price

    This refers to manually or automatically closing your position at a certain price to exit the trade, often used to lock in profits or limit losses. This action may or may not result in a profit, depending on the price movement.

    • Close Bet at Loss

    This typically refers to a stop-loss, where your position will automatically close when it reaches a specific loss threshold to minimize losses.

  • Fees

    • Funding fee

      A recurring fee is charged for long (buyers) and short (sellers) positions in futures contracts and is paid at regular intervals.

    • *PnL Fee

      The Profit and Loss (PnL) fee is a charge based on the profit or loss of a trade. If your trade is successful and you make a profit, a percentage of that profit will be deducted as the PnL fee. However, if your trade results in a loss, there will be no PnL fee deducted.

    • Flat Fee

      A flat fee is a fixed charge applied per transaction that covers entry, exit, and slippage before entering the trade.

*The fee is subject to market volatility. The final calculation of the fee will be displayed in your transaction history.

Futures trading is a dynamic and potentially rewarding market but comes with its complexities. Traders should always be aware of the associated concepts and risks to manage their investments effectively.

If you have further questions or need clarification, feel free to contact us via live chat and ask!

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