Trading Bitcoin Vs. BTC Futures – Which One Is Best for You
Expert traders have been using BTC futures for years, but small investors or retailers are yet missing out on the opportunities due to incomplete or incorrect understanding of the instrument.
With the rise in the number of crypto trading exchanges like PCEX Member, Binance, FTX, Bitfinex, Bybit, and Kraken offering BTC futures trading, the comparison Trading Bitcoin Vs. BTC Futures is most likely to surface in the mind of investors like you.
PCEX Member a cryptocurrency exchange in India explains both spot and futures instruments, and their pros and cons along with tips to maximize the ROI with either of the options. Our objective is to help you find the answer – which one is the best investment option – yourself.
Understanding the Difference: Spot Vs Futures Trading
In spot trading, there is a real-time settlement between the buyer and seller of the BTC asset. The requirements of buyer and seller go into the Order Book as Bid Price and Ask Price respectively and matchmaking or orders take place. Once the trading is over, the buyer gets the cryptocurrency in the definite lot size, while the seller receives fiat or stable coin (or other assets, sometimes NFTs).
In the BTC futures, the trade is based on opposite speculations made by the buyer and seller on the BTC futures price at a pre-defined point of time in the future. They deposit the margin amount with the exchange. The price of futures tracks the price of an underlying asset. No one initially gains or losses anything from it at the time of the contract. They wait for the contract to expire or go for a settlement by terminating in advance. Their profit or loss is estimated on the spot price on the crypto asset on that particular expiration or termination date. The differential of the price is credited to the account of the buyer or seller.
To make speculations in the right direction, you must have a sound understanding of the complex factors like expiration, liquidity, volatility, and any relevant news.
Here are highlights of the pros and cons of Bitcoin Spot and Bitcoin Futures.
Pros of investing with BTC spot
- Low risk
- Immediate monetization
- Gain ownership
- No complexity as you know the current value
Cons of investing with BTC spot
- Low return
Pros of investing with BTC Future
- High return
- Cash settled (no wallet required)
- Low trading fee
Cons of investing with BTC Future
- Price Limits cut into trading profits
- High risk
- Not an ideal instrument for short-term investors
What instrument type is right for you?
Beginner or experienced – no matter what type of investor you are, if you want to go for a long-term investment, BTC futures is the best bet. Going with BTC futures for a short-term could be a bit risky if you are not fully aware of the market dynamics.
The liquidity score (0 – 1,000) of a market pair is a decisive factor. The mark 1,000 reflects the most liquid of markets and 0 as the most illiquid one. The higher the score, the more liquid a market is. The lower the score, the less liquid the market is. Wondering what is liquidity? It’s a measure of the ease of buying or selling an asset in the market. Owning an asset with high liquidity has its advantage. You can sell it anytime in the market to make a profit. There is little fluctuation in its price.
Trading Bitcoin or BTC futures – once you choose your investment portfolio, the next step is to find the right trading exchange. Key determinants of a healthy exchange are as follows:
Know how well your BTC asset is performing at the target exchange. BTC dominance is the share of BTC out of the total trade volume including that of altcoins (all other coins besides BTC). Compare the BTC dominance percentage across multiple top exchanges including PCEX Member, Binance, Bybit, and Kraken. Going with an exchange with a high BTC dominance value is a safe decision.
The market capitalization of the exchange is the overall trading volume across all crypto assets including Bitcoin and altcoins. It reveals the financial strength of the exchange. Investing in an exchange with high market capitalization is undeniably the better choice.
The term “markets” stands for “highly liquid cryptocurrencies” pairs that are being traded on an exchange. Here is a list of the top 10 markets by the time of writing this post (January 14, 2021).
The pair BTC/USDT is certainly the most promising one. It’s dominant positing signifies that more buyers and sellers are trading in this pair followed by BTC/USD. The availability of more investors is a positive aspect. You can immediately find the best buyer or seller to maximize your profit from the trade. For Indian investors, whether investing in Bitcoin spot or BTC future, the pairing of crypto like btc to INR is highly recommended. PCEX Member supports both INR and USD as a fiat currency.
Hope, you have earned the understanding to make the right choice – Bitcoin Vs BTC futures. PCEX Member equips you with the knowledge and tools you need to make a high profit in a marketplace as volatile as crypto trading.