Recently, after repeated negotiations, the Fed finally announced the long-awaited plan for higher interest rates, with a clear schedule for steady increases of interest rates and the regular shrinking of its balance sheet. The news has been well-received by the crypto market. After the plan for higher interest rates was finalized, the BTC price went up in the short term. Although the market has already been fully aware of the news, based on the current circumstances, many investors believe that Bitcoin will still fluctuate within a narrow range as monetary policies tighten in the future and that significant swings would require fresh news that could influence the market as a whole.
Market swings do not mean that crypto investors can no longer profit. Futures traders, who focus more on short-term operations, have not been dampened by the temporary downturn. Instead, the trading volume of crypto futures has been on a steady rise. Why do investors prefer futures during market swings?
In the crypto market, futures are a type of new contract that evolved from conventional futures contracts. Compared with the latter, crypto futures do not expire and will not be settled. Therefore, other than forced/manual liquidation, a futures position can be kept open indefinitely.
An important reason why crypto futures are favored by investors during market swings is that such contracts allow them to profit through the rising/falling crypto prices by buying long or selling short based on their market insights. Compared to spot trading, futures trading enables you to profit by buying long when the crypto price rises or selling short when the price falls, which means that you’ll be able to profit from both rises and falls.
Apart from this, the biggest advantage of futures is that they allow users to trade crypto assets at a certain leverage ratio, which multiplies small price swings and bring excess earnings to investors. For instance, if the current BTC price stands at 40,000 USDT and you decide to go short in the belief that the price will fall, suppose you get 40,000 USDT as your available margin, a 20X leverage ratio would help you start a position of 20 BTC. If the BTC price fell to 39,600 USDT, the 1% drop would bring you a $20 return and a profit of 8,000 USDT.
Some might say that you can also multiply your returns through leverage in margin trading. However, it should be noted that the maximum leverage ratio in margin trading is often within 10X, while futures trading features higher ratios. In addition, margin traders also have to pay interest according to the borrowing date, as well as transaction fees. By comparison, futures traders only have to pay transaction fees and the funding rate when selling/buying a position.
Right now, there are nine kinds of leverage ratios on CoinEx. In particular, the maximum leverage ratio of futures markets like BTCUSDT and ETHUSDT stands at 100X, which enables high returns as well as more prudent investment strategies.
Though the crypto market remains in a volatile period, the daily rises/falls of mainstream cryptocurrencies are not significant. If you could fully tap into futures leverage and capture the right market trend, you would enjoy handsome returns even in a sluggish market.