Bitcoin

Crypto Trading vs Crypto Futures

Updated: Dec 30, 2021


Photo by Ivan Babydov from Pexels


I use trend spider as my charting tool. When I search for BTCUSD ( as we all know, bitcoin is paired with multiple currencies. BTCAUD stands for Bitcoin w.r.t Australian Dollar and BTCUSD stands for Bitcoin w.r.t US dollar), multiple symbols show up. One symbol will have tag as C-futures and the rest of the symbols will have tag as crypto and will start with ^ as shown below


In this post, we want to briefly discuss what are the similarities and difference between crypto and c-futures. If you are wondering, why we have so many symbols pop up for crypto, each one represents the price of the crypto in the corresponding exchange. The prices can vary from exchange to exchange.


Crypto trading

Crypto trading is the actual trading of the crypto token or a coin on a crypto exchange such as Coinbase or through your personal wallet interacting with DEX. It gives you complete possession of the coin/token. Prices can vary on each exchange and is always advised to place a limit order to buy cryptos on the exchange.


Crypto Futures Trading

Crypto futures works the same way as commodity futures that enables you to trade the contracts corresponding to the coins/tokens for the appreciation/depreciation without holding the underlying crypto currency. How futures work is beyond the scope of this port. But, in a nutshell, a contract is created between two parties to buy/sell cryptos on a future date and cash settlement is done based on the price of the futures on that date. Some coins/tokens like Bitcoin have even micro futures available that is 1/10 the value of the bitcoin.


Differences

  • Cryptos can be bought in fractions where as the micro futures (1/10th)is the least we can buy in futures

  • There will be a price difference between the cryptos and corresponding futures prices ( prices will be more) because of the associated premium costs of the futures.

  • With actual cryptos, we cannot trade the downside when the prices are falling where as we can trade downside also with crypto futures.

  • One needs a wallet to store cryptos and should store the private keys corresponding to the wallet for secure access. If you are trading in an exchange, you are automatically provided with hot ( available quickly) and cold wallets and corresponding private keys are maintained by exchanges. Since futures do not deal with the actual asset, we do not need wallets and private keys.

Summary

Both cryptos and cryptos futures are great vehicles from trading perspective. If you would like to accumulate actual coins like gold/silver, then crypto trading would suit you. On the other hand, If you are interested in capitalizing on the price fluctuations of the underlying asset and are not interested in managing the coins/tokens, then crypto futures would suit you.

Did you know that Breakout trading strategy is one strategy that can be used for trading cryptos, stocks, options and other derivatives and gives you the best risk reward ratio (RRR) for the trades placed.


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