From the LBank blog.
LBank is an advanced cryptocurrency derivatives exchange that offers a diverse array of trading tools. With a focus on providing unparalleled security and a steadfast commitment to zero downtime, LBank is a reliable and trustworthy platform for traders seeking to buy and sell contracts based on the value of underlying cryptocurrency assets.
To fully understand the benefits and questions that come with trading on LBank, it’s important to have a clear understanding of what derivatives are. Essentially, derivatives are financial instruments or contracts that derive their value from an underlying asset, such as cryptocurrency. When trading at LBank, traders buy and sell contracts rather than owning the actual asset. These contracts allow traders to buy or sell the underlying asset at a specified price in the future, providing a valuable tool for managing risk and maximizing profits.
For individuals new to the world of cryptocurrency, there may be a lot of uncertainty and confusion. One aspect that may cause particular confusion is cryptocurrency futures, which allow traders to speculate on the future price of a given cryptocurrency. To help clarify this topic, below are some frequently asked questions about crypto futures for beginners to consider:
- How does Lbank futures work?
- Is your cryptocurrency safe with LBank?
- What does a typical trade look like?
- Why do futures prices differ from the spot prices?
- Why should I trade futures?
- How Does LBank Futures Work?
LBank Futures is a widely used platform among traders who are keen on futures trading with leverage. To ensure the security of its users, LBank Futures follows a KYC (Know Your Customer) verification process while opening an account. Once the verification process is completed, users can make deposits either by using cryptocurrencies or fiat currency, which can be purchased using a third-party app.
LBank Futures offers its users the advantage of margin and futures trading with up to 100x leverage, which can significantly boost their potential returns. However, it is essential to bear in mind that leverage can amplify losses as well, and thus, traders must have a good understanding of the associated risks. But in addition, the platform does offer short-term insurance to help reduce such losses.
For experienced traders, LBank Futures provides a user-friendly website and mobile app packed with an array of useful features. Traders can choose to go long (bet that the currency will gain value) or short (bet that the currency will lose value), and they can make three primary types of orders:
- Limit: This type of order allows traders to set a specific buying or selling price.
- Market: This order is filled instantly from the order book, and traders will pay a taker fee.
2. Is your cryptocurrency safe with LBank?
LBank takes security very seriously and has implemented multiple measures to safeguard its users’ assets. To prevent unauthorized access, the platform stores 100% of its clients’ funds in cold storage, offline. Additionally, it manually reviews each withdrawal request, ensuring that only authorized transactions are processed.
At the user level, LBank has enabled two-factor authentication for withdrawals and account security settings changes. This added layer of security ensures that only authorized individuals can access the account and execute transactions.
Overall, LBank’s focus on security ensures that users can trade with confidence, knowing that their assets are protected by advanced security measures.
3. What Does a Typical Trade Look Like?
Let’s say you’re interested in trading Bitcoin-Dollar futures and believe that the price of Bitcoin will increase against the US dollar. You decide to buy 1,000 Bitcoin-Dollar (PF_BTCUSD) futures at 29000 BTC per USD. Keep in mind that the contract size for multi-collateral linear futures is 1 base unit, in this case, 1 BTC.
Fortunately, the price of Bitcoin does increase as you predicted, and you’re able to sell the futures at 30000. To calculate your profit and loss (P+L), you can use the following formula:
(Exit Price — Entry Price) x Position Size
In this case, your PnL is:
(30000–29000) x 1,000 = 1, 000,000 USD
This means that your initial investment of 29,000 USD has now increased to 30,000 USD, resulting in a profit of 1000 USD. This is just one example of how futures trading can be used to speculate on the price movements of cryptocurrencies like Bitcoin.
4. Why Do Futures Prices Differ From Spot Prices?
In crypto futures markets, such as digital assets like Bitcoin, price disparities are largely influenced by supply and demand imbalances. For example, in the past, Bitcoin futures have frequently traded at a premium compared to the spot price, indicating a significant demand to purchase Bitcoin with leverage.
5. Why Should I Trade Futures?
Trading futures offers several benefits over directly trading the underlying asset:
- Futures enable traders to profit from both upward and downward price movements
- Futures provide financial leverage
- Futures can be used to hedge against price risk
Despite these advantages, trading futures and other leveraged instruments involves some level of risk. The value of futures may rise or fall, and it’s possible to receive back less than the initial collateral. In some cases, traders may even lose their entire collateral balance.
Overall, crypto futures trading can offer many advantages, including the ability to benefit from both price increases and declines, financial leverage, hedging price risk. However, it’s important to note that trading futures, derivatives, and other leveraged instruments also involves significant risks. Also, choosing a reliable and secure platform like LBank Futures with robust security measures can help mitigate risks and protect your assets.
Disclaimer: Derivatives are often volatile, and this can be a risky investment. The information provided in this article is solely for educational purposes and shouldn’t be regarded as financial advice.
This article came directly from the LBank blog, found on https://lbank-exchange.medium.com/5-most-frequently-asked-questions-about-lbank-futures-b65220bd6aa9?source=rss-87c24ae35186——2