When it comes to practical application bitcoin isn’t much different from high-risk investment. Investing in this can be determined by the investment objectives and risk tolerance. Make sure you know the bitcoin’s drawbacks and benefits too that can help you to make the much-informed choice on if you must invest in bitcoin or not.
Think of investing in cryptocurrencies if you are looking for good investment opportunities. Hence, it is very important that you are aware of both the pros and cons of the crypto market before investing in it. We will now look at the pros and cons of investing in bitcoin futures and this can give us a little insight into what you can expect from this trading platform. Looking at the pros of futures trading:
It is important to have an initial margin before you enter the futures position. The initial margin is a percentage of the futures position value that should be covered either by cash or by collateral when you are using the futures trading account. Alternatively, maintenance margin generally refers to the minimum amount that the investors have to keep future trading positions open. The maintenance margin checks will be continuous as well as help in the margin calculation. When the limit of the trader’s maintenance is hit, then his position will get liquidated.
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Liquidity is a measure of how fast or easily the cryptocurrency will be converted into cash, without impacting its market rate. Liquidity is very important as it brings about much better costing, faster transaction period as well as higher accuracy for the technical analysis.
Generally, the cryptocurrency market can be considered illiquid as transactions will be dispersed over multiple exchanges that mean small trades will have a high impact on the market rates. It is a part of the reason that cryptocurrency markets are quite volatile.
But, when you are trading cryptocurrency CFDs, you will get better liquidity as prices get sourced from various venues. It means your trades will be executed fast and at a lower rate.
Inexpensive and Fast
It just takes some minutes to send money. Irrespective of the amount or destination, making the move to a different part of the world through the bank will be very expensive. But, when it is done in bitcoins, its cost will be non-existent or negligible. Bitcoins are sent to any country on this planet. Bitcoin, just like the e-mail and Internet, do not have any kind of geographical limitations. When combined with an assurance of protecting their users’ rights, it makes Bitcoin a truly global currency out there.
The crypto perpetual contracts do not settle like the traditional futures contracts. Thus, exchanges need some kind of system that makes sure that index rates and futures rates converge regularly. Such a mechanism is known as the funding rate. The funding rates can be calculated based on the cost difference between the spot and the futures markets. The investors can pay or get funding payments that are relative to its open market positions.
The funding rates will have huge effects on the traders. For example, funding rates will surge in the overheated bull market, making it expensive for the traders to hold over long positions.
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Volatility: High volatility will sometimes be a good thing or can be a torment to the traders. Deciding the market’s movement isn’t any guarantee.
Losses will not be limited to the funds deposited. As futures contracts are the margin products, losses (and gains) are amplified. You stand a chance to lose the whole investment however not just this, sometimes it will go beyond that. Also, your losses aren’t limited to funds and equity in the account when trading. For a huge loss, you have to pay up extra funds for covering any kind of loss.
Risky: Because of the high leverage, crypto future trading is the riskiest trading option. Beginner traders must reduce the exposure to futures as well as trade them with a strong risk management policy.
Influence on the spot markets. In a traditional market, futures are generally considered as an indicator of the price hence contributing to the volatility of an underlying asset. However, as the size of the crypto futures market is limited to being a fraction of spot markets, its influence will be limited.