What is Trading Futures on Binance? Things to know before trading Futures

TutorialsJuly 17, 2021

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Futures trading is quite a special and famous feature on Binance, loved by many professional traders. So what is trading Futures on Binance? Futures trading like? We will find out in the article below.

Trading Futures on Binance

* See more: The complete guide Binance from a to z

What is Futures Trading?

Futures trading on Binance is the feature of trading a contract to buy or sell a certain cryptocurrency in the future on the Binance exchange. This is the distinguishing feature that distinguishes between the spot market and the futures market.

To distinguish the futures market from the spot market, you can interpret the spot crypto market on Binance as similar to the underlying stock market. When you trade real shares, you can only make purchases to own shares and sell those shares when you no longer want to hold those shares. And the spot market on Binance is a form of real cryptocurrency ownership and coin ownership, and you can use that coin as a payment method, transfer between different exchanges.

Meanwhile, futures trading is similar to when you trade stock CFDs. You do not fully own the coin, but only the contract to trade a coin pair. And similar to the stock CFD market, on the futures market, you can place both BUY (when uptrend) & SELL (when downtrend) orders. In addition, you can also set a stop loss, take profit or use leverage, just like you would when trading stock CFDs. Due to the use of leverage, you can trade futures with a small amount of capital. However, using leverage also means that you will face the risk of burning out your account. The futures market will be riskier, not suitable for people without much experience.

Some concepts in the futures market

  • Position: This is the state (Buy/Long or Sell/Short) you are taking.
  • Buy/Long Position: This is where you take a Buy a coin, and when the price goes up, you will have a profit and a loss if the price goes down.
  • Sell/Short Position is your selling of coins; when the price drops, you profit and lose when the price increases.
  • Initial Margin: The amount you use to open a position before using leverage. Example: To open a Buy/Long 1 BTC position at 30,000, an initial deposit of 300 is required, and 100 leverage is used.
  • Maintenance Margin: The minimum amount required to maintain your position. If your margin balance falls below the maintenance margin, your position will be automatically liquidated.
  • Liquidation: is a forced position to close when the margin balance is less than the maintenance margin.

Types of Futures on Binance

The futures market is divided into two main types: USDⓈ-M contracts and Coin-M contracts.

Coin-M Futures: Exchange rate of a coin against USD

  • Coin-M Perpetual
  • Coin-M Delivery

USDⓈ-M (USDT-M) Futures: the exchange rate of a coin against stablecoin USDT or BUSD

  • USDT Perpetual
  • USDT Delivery
  • BUSDT Perpetual

The perpetual futures will not have an expiration date. It is up to you to decide when to close your futures contract.

Meanwhile, delivery futures will have an expiration date fixed at a predetermined date in the future. By the due date, even if you don’t want your trade to be closed automatically.

Futures trading terms

In the futures market, there are the following types of trading orders:

  • Limit: When placing an order, you will enter a price in the “Price” box; when the market reaches that price, You can not execute the order.
  • Market: Your order is executed as soon as it is placed at the current market price.
  • Stop Limit: The order includes the stop price and limits order. You will open a pending order at the limit price you set earlier when the market reaches the stop price.
  • Stop Market: The order includes the Stop Price and the market order. When the market price reaches the stop price, You will match the order immediately with the market price.
  • Trailing stop: The order will be executed at the “trigger price,” The Trailing stop order will automatically set a stop loss when the price moves in favor of the pre-set rate (1% or 2%). Once a new stop loss has been established, the Trailing Stop order will not correct in the opposite direction.
  • Post Only: The order will be added to the order book but not executed immediately.

Options when placing orders:

  • TP/SL: You click this box to set the level to take profit, stop loss
  • Orders only decrease: You click this box so that the order you executed is only used to close the position and not open more positions.

TIF – matching modes:

  • GTC: order is executed until fully matched. You can choose the default mode to be GTC.
  • IOC: order is partially filled, and the rest is canceled.
  • FOK: the order is filled or will be canceled.

Conclusion

Thus, we have covered some of the most basic concepts related to trading futures (futures) on Binance. In the following articles, you will be guided step by step on how to execute the command of the future? When to use which order type is appropriate and profitable.

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