What are futures?

A futures contract is an agreement between two parties to buy or sell an asset at a set price on a specific date. It allows traders to plan ahead by locking in a price today for a trade that happens later.

While futures started in traditional markets with assets like oil and wheat, they are now common in crypto. They allow you to trade on the price movements of Bitcoin or Ethereum without actually owning the coins.

The basic idea

Every futures contract has three main parts:

• The asset (what you are trading, like Bitcoin).

• The price (the agreed value).

• The date (when the trade settles).

When the date arrives, the trade is settled based on the current market price versus your agreed price.

• If you believe the price will rise, you take a long position (buying now to sell higher later).

• If you think the price will fall, you take a short position (selling now to buy back lower later).

With futures, you are not buying the digital asset itself to store in your wallet. You are strictly trading on what you believe the future price will be.

Why do futures exist?

Futures were originally created to help people manage risk. For example, a farmer might use a contract to lock in a wheat price months before harvest. This guarantees their income even if market prices drop.

In crypto, traders use futures for similar reasons:

• Hedge (protect against financial loss) by balancing their portfolio if prices move the wrong way.

• Speculate (predict price movements) to profit from market changes.

• Plan trades without needing to purchase the underlying asset.

Some traders also use leverage (using borrowed funds to increase the size of a trade). While leverage can increase profits, it also increases the risk of loss. It is vital to use these tools carefully and understand margin (the collateral required to keep a trade open).

Futures in crypto

Crypto futures function like traditional contracts, but the asset is a digital token. There are two main types you will encounter:

• Dated futures: contracts with a specific expiration date. These settle automatically when that date arrives.

• Perpetual futures: contracts with no expiration date. These use a funding rate to keep the contract price close to the real market price.

The takeaway

Futures allow traders to plan for tomorrow’s prices today. They are powerful tools for managing risk, but they require patience and discipline.

Just as Rain prioritizes keeping your funds safe with rigorous compliance protocols, you should prioritize safety in your trading strategy. Always ensure you understand the tools you are using and trade on regulated platforms like Rain to minimize risk.