Wed, July 24, 2024

Futures trading vs Margin trading: Which One Is Better?

Futures trading vs. margin trading

No wonder a lot of people are getting attracted to crypto trading and NFT marketplaces lately. Popular altcoins like Bitcoin and Ethereum are crossing the all-time high mark in the first quarter of November. With BTC crossing $68,000 and ETH crossing $4,800, investors are witnessing the peak price hikes that ever happened in the industry.

The majority of newcomers assume that buying and selling crypto is typically the only way to trade. Fortunately, there are a lot of different trading methods available to choose from. Not to mention the availability of methods depends on which crypto exchange you are using. Only the best crypto exchanges in the market will give you access to professional trading methods, so choose wisely. We will briefly discuss one of those professional crypto trading methods: futures trading and margin trading.

What Is Futures Trading?

As the name suggests, Futures trading is related to some guesswork for sure. If you have never used this trading method before, it can be very interesting for first-timers if you are willing to learn new things. Futures trading is a feature available on crypto trading platforms that allows the investors to create a legal contract with the platform itself.

Furthermore, both the parties agree to complete a particular transaction at a predefined date. Your profit and loss depend entirely on your ability to make the right prediction regarding the changes in the pricing of different crypto assets. You can think of futures trading as a binding agreement between the investor and the platform.

In simple words, if you wish to start using the futures trading feature, you need to learn about different markets. For example, if Bitcoin is currently trading for $68,000, you need to predict the future price of BTC under an agreement from the exchange. Not to mention this method can help you maximize your profit margin if used correctly.

What Is Margin Trading?

Margin trading is an entirely different concept than futures trading. As it allows you to trade a lot more than your actual capital, many investors choose margin trading. While sliding solid profits into their pockets, margin trading requires enough trading experience for generating any profit at all.

Especially if you are a newcomer, understanding how margin trading works can help you in multiple ways. Margin trading is a process in which the platform allows you to trade more than your portfolio value. As you borrow assets from other traders, you need to pay interest for implementing the margin trades.

The leading factor that decides whether your trade will be a profitable one or not is your choice of crypto coin. Choosing the best crypto projects to invest in is essential, whether you are using margin trading or futures trading. Since margin trading involves paying a fixed amount of interest for using extra leverage, knowing how to avoid possible losses is crucial.

Futures Trading vs. Margin Trading

After understanding the concept of margin and futures trading in detail, it will become easier to differentiate between them. Futures trading and Margin trading require a keen eye on the Cryptocurrency price list to make any decent profit from them. As you risk your funds in both ways, we recommend focusing on the minor factors affecting your profit margin.

The main difference between futures trading and margin trading is the payable interest rate. As discussed previously, margin trading requires the trader to pay a fixed amount of interest for borrowing funds from other traders. On the contrary, if you use futures trading, you need to complete the contract with the trading platform.

Another remarkable difference between both trading methods is buying potential. Suppose you choose margin trading with a portfolio of $1000. In this case, you will be able to purchase crypto multiple times worth more than your actual portfolio amount of $1000. But if you choose to go with futures trading, the same cannot happen because you will predict the price for a specific coin and complete the transaction worth the same amount on the due date.

Which One Is Worth Choosing?

Now let’s address the main question of which one you should choose: Margin trading or Futures trading? Again, it comes down to your personal preferences. From a trader’s perspective, your choice can vary depending on the investment amount and experience of trading various cryptos. However, if we were to choose between futures trading and margin trading, without a doubt, it would be futures trading as the process involves an agreement.

Hence, it is more secure than margin trading in terms of both fund security and overall costing. Additionally, futures trading allows you to decide the transaction price range in advance so that you can make the most out of your investments. Above all, make sure to check the below information before initiating a trade if you wish to avoid any problems in the future related to margin or futures trading.

Things to keep in mind

  1. The interest amount that you will need to pay
  2. Overall liquidity of the crypto exchange to ensure trade possibilities
  3. The validity period of the futures trading contract
  4. Consider the leverage amount before transacting
  5. Go through the contract terms and conditions thoroughly

To Wrap Up

Having access to multiple trading methods is quite useful for trading different cryptocurrencies. But only if you have enough knowledge for utilizing the available resources in the best possible way. Hence, terms like futures and margin trading often confuse the newcomers. You are forcing them to avoid using these professional trading techniques due to a lack of proper guidance.

No doubt you can make humongous profits with margin and futures trading. Therefore, understanding the difference between both of them is essential to start utilizing them in the future. Considering both methods’ risks, we cannot guarantee that you will make a profit for sure. If you found it helpful, share this info, and let us know which method you will be using in your next crypto trade?

Advanced trader? Try trading with the best broker for advanced traders.


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