With Futures trading, you can make money on the price movements of the asset without ever taking up the risk of actually owning the asset itself.
Although crypto exchanges are easily available and a lot in number, you should know which of the ones are trustworthy.
Another thing to understand and research is your country’s view of cryptocurrencies and the centralized exchanges that offer you these products.
This article takes you through whether crypto Futures trading is available and legal in the UK, what exchanges give you the opportunity to trade them, and how you should go about choosing your exchange.
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The Current State Of Crypto Futures Trading In The UK
As of December 2021, the FCA (Financial Conduct Authority) in the UK has banned the sale of crypto derivatives, including CFDs, Futures, Options, and exchange-traded notes, to retail consumers.
The Authority has taken this decision as they see these products as unsuitable for retail, and the underlying assets themselves have no fundamentals that can be evaluated to come to a fair valuation.
The ban came into effect on January 6, 2021, and according to the regulator, will save retail traders close to £53 million in collective investment.
Even though the ban seems to have been directed at all crypto exchanges offering derivatives products in the UK, Binance is the only one that has been affected.
In light of this, Binance sent a questionnaire to their customers to understand whether the users are private investors or come under the purview of the FCA.
As private investors, traders can continue to access derivatives products on the website. Exchanges like Bybit and Kucoin have not paused their services and are available for the regular UK investor to use.
Where To Trade Crypto Futures In The UK?
There are several platforms that offer cryptocurrency Futures trading in the UK. Some of the more popular ones include:
BitMEX
This platform is based in Hong Kong and offers Futures contracts on a variety of cryptocurrencies, including Bitcoin, Ethereum, and Litecoin. To know more about it, check this detailed BitMEX review.
Deribit
This platform is based in the Netherlands and offers Futures and crypto options trading on Bitcoin and Ethereum. It is #7 in CMC’s (CoinMarketCap) rating of worldwide exchanges that offer derivatives trading. You can learn more about the exchange through this Deribit review.
Kraken
This is a US-based cryptocurrency exchange that offers Futures trading on Bitcoin, Ethereum, and several other digital assets. To learn more about it, check this comprehensive Kraken review.
Bybit
Currently the second-ranked platform on the trusted CoinMarketCap, Bybit has been a trustworthy exchange with an average of $6.1 billion in 24-hour trading volume. To learn more about the exchange, check this ByBit review.
Kucoin
In the top 4 of the worldwide exchanges providing services in the UK, Kucoin is a destination for traders looking to pick up gems that may be about to have their next leg up and are not available on big exchanges like Bybit or BitMEX. To know more about it, check out the Kucoin review.
How To Choose The Best Exchange To Trade Crypto Futures?
There are a few things to consider when choosing an exchange to trade crypto futures:
- Jurisdiction and regulation
Make sure the exchange is operating in a jurisdiction with favourable regulations for crypto Futures trading.
Take the example of Binance, provided above, which did not cooperate with financial regulators and thus had to shut its derivatives offerings.
In some cases, like in the US, Binance is not allowed to offer its complete repertoire of crypto so they have had to launch a separate entity of Binance.us that only has spot pairs.
- Liquidity
It is important to note that when you take a long position on an asset, the exchange’s matching engine finds a corresponding short position that will take this trade.
This is why you should choose an exchange with good liquidity in the Futures markets you want to trade.
This will ensure that you can enter and exit trades easily and with minimal price slippage. Refer to a few websites like Coingecko and CoinMarketCap to give you a good comparison of the trading volume.
This information will help you make a better decision regarding where you should trade and how easy it will be for you to get in and out of trades.
- Fees
Compare the fees charged by different exchanges for trading futures. Some exchanges charge higher fees than others, so it’s important to shop around.
There are also a few types of fees that exchanges will charge you, and if you tend to take multiple trades in a day, these fees can add up.
Firstly, make sure you are getting the best Maker/Taker fees.
Some exchanges also have a liquidation fee, so in addition to the invested money that has been lost due to liquidation, you also stand to lose more money as a liquidation fee.
In some cases, it may be wiser to add more margin to the position so that it is not liquidated.
- Platform and tools
Consider the platform and tools that the exchange offers. Is it user-friendly? Does it offer advanced features like crypto margin trading and short selling?
Does it have a calculator for you to better plan your entry and exit prices?
The ease of use of the platform and the tools can become an essential part of your trading process as you grow. This can keep you hooked to one exchange as it makes your day easier.
- Reputation
Do some research on the reputation of the exchange. Are they known for being reliable and secure? Have there been any controversies or hacks?
If there are rumours of your exchange of choice being insolvent, it is best to take the precautionary measure of getting your funds off the exchange and onto a safer one.
It’s also a good idea to consider diversifying your trades across multiple exchanges to spread risk.
- Customer support
In the event that you encounter any issues while trading, it’s important to have access to responsive customer support.
Consider the quality of support offered by the exchange you are considering. You should be able to find reviews of customer support and the overall platform itself on websites like Trustpilot.
From the experiences of people who have put them here, you can take a more informed decision about the exchange you will be majorly trading on.
- Deposit and withdrawal options
Consider the deposit and withdrawal options offered by the exchange. Do they support the payment methods you want to use? Are there any fees for deposits or withdrawals?
- Insurance
Some exchanges offer insurance for digital assets on their platform. This can provide an additional layer of protection in the event of a hack or security breach.
- Market data
Check to see if the exchange provides access to market data and tools for analyzing prices and trends. This can be helpful for making informed trading decisions.
Different Types of orders and contracts
When trading Futures, you can use different types of orders to enter or exit a position. See if the ones that you frequently use are offered by the exchange you are about to trade on.
These include market orders, limit orders, stop orders, and stop-limit orders. It is important to understand the characteristics and risks of each type of order.
- Physical and Cash-settled Futures
Physical Futures involve the actual delivery of the underlying asset when the contract expires, while cash-settled Futures do not involve the physical delivery of the asset.
Instead, the difference between the contract price and the settlement price is paid out in cash.
Currently, Physical Futures trading is done by Bakkt on the New York Stock Exchange (NYSE), while most other platforms like CME, and Bybit offer cash-settled contracts.
Depending on how you want to settle contracts, you can choose your platform accordingly.
- Risk management
Risk management is a critical aspect of successful Futures trading.
This can include setting stop-loss orders to minimize potential losses, diversifying your portfolio to reduce the impact of any one trade, and maintaining a disciplined and well-defined trading plan.
In a sideways market, when the price is not definitively in a bull or bear trend, your positions should be a mix of short and long according to the technical and fundamental analysis of the asset.
Some of these techniques need to be applied manually, but for others, like trailing stop-losses, you should make sure that your exchange is offering the option before rubber stamping your decision.
Conclusion
Now you know how you can best choose the crypto Futures exchange for you as well as a few leading options that others in the UK have been using.
In summary, trading cryptocurrency Futures can be a risky but potentially lucrative endeavour.
To increase your chances of success, it is important to thoroughly research the platform you are considering using, have a good understanding of technical analysis and risk management techniques, and stay up to date with market news and trends.
As with any investment, it is important to only trade with capital that you can afford to lose.
