Easy explanation of futures

A lot of people new to the crypto scene are also very new to the financial world. And so was I a few years ago. And along with all these new concepts also came a lot of concepts that are common in the financial world. But if you are just an average Joe who did some investing through his bank in funds but never in specific stocks then this is wildly confusing.

So here I was, trying to make head or tails from all this new stuff with blockchain and crypto and made a valiant attempt to become my own bank. One of the steps to doing that was getting the hardware wallets needed to guard my keys offline
So I have a ledger nano S as the main one and a few more.

But then I wanted to invest, I wanted to trade, I still want that passive income. And there it was, I could do futures trading on Bitmex

I dove right in and started trading and even made some profit without actually knowing what I was doing. I was smart enough to take out a little bit and trade with the profits. I managed to make about 6 bitcoin and also was able to lose them all again just as fast. Watch out with that leverage, its dangerous :-)

But then I started studying a bit more and one of the first concepts you have to wrap your head around is Futures and Spot prices.

What is Futures trading?

** The easy explanation of a futures trading ** is done with lambs.

Imagine the shepard in his meadow. Every year he gets new lambs and he wants to sell those lambs to a fine restaurant. The cool thing is that the restaurant also wants to buy them. Now mr shepherd could wait till the Chef says he needs lamb chops and deliver the meat and sell it at the same time.

OR

they could make a deal to sell the lambs for a fixed price set in the FUTURE. So in this deal the shepherd has a nice idea of how much money he is going to make off this deal and the restaurant can already calculate in the price they are going to have to pay without taking in market fluctuations.
This process hedges the risk on both sides. But say that someone thinks that the price will go up or down in the future due to external factors they might be willing to take a bet on that and voila...
That is how futures trading is born

this is also how the restaurant it is sure it can serve the lamb chops at a fair price

The same goes for example for Bitcoin miners that would prefer to have a fixed price to sell their BTC to cover their costs.

So in effect people are betting on what the price will be in the future and trading on that without having to have the actual asset and they only need collateral. It reduces the risk of holding the actual asset that is traded with futures.

So if you want to give this futures trading on cryptocurrencies a go then the biggest exchange out there for the moment is Bitmex. The deposits on the exchange are all done in Bitcoin.
Just be careful and do not use to much leverage. I have been using this for a few years now and have broken even but it is easy to get carried away.