FTX Futures trading has high-profit margins, allows for leveraged trading, and unlike in spot trading, the traders can also short an asset, meaning you still make a profit even when the asset price falls.
FTX has been in the game since 2019, and besides their robust futures trading market, they have many other innovative products like options, leveraged tokens, and volatility products. Also, their platform caters to both professional and beginner traders.
This article takes a comprehensive look at FTX futures trading and explains all the essential things you need to know about it before investing your money.
What Are FTX Futures & How To Leverage Trade On FTX?
FTX futures are a type of derivative financial contract. Therefore, it is always best to first understand derivatives and how they work to know futures well.
Derivatives are financial contracts or instruments that get their value from an underlying cryptocurrency asset. Hence when you buy or sell derivatives like futures, you do not trade the asset but rather a contract representing the actual asset.
Trading in derivatives can help you trade at lower costs, manage risk better, sell short, and trade with less capital investment. However, the primary purpose of derivatives is hedging when you want some protection from crypto price fluctuations.
With that out of the way, trading futures entails the buyer and seller entering a contract to buy/sell the crypto asset at a predetermined price and date. The buyer has to buy the asset at the agreed date and price regardless of the market movement, and the seller also has to sell it under predetermined terms.
Besides predetermining the asset price the two parties will exchange, the FTX futures contract will also set the size/quantity of the asset.
With a futures contract, the traders can choose whether to go long or short. If you believe the asset price will go up, you can go long and sell it for a profit in the future. However, you can go short if you think the price will go down.
How Do FTX Futures Work?
The FTX futures market aims to cater to all kinds of traders by including smaller or less known cryptocurrencies with low market caps. They have futures for more than 80 different crypto assets, which is more than most other crypto exchanges, including large ones (for example, BitMEX only has futures contracts for 13 digital coins).
Besides offering more digital coins for their futures contract, the FTX futures works the same way as other crypto exchanges that offer these contracts but with a few distinctive elements.
One of the key ones is that the FTX futures are settled in stablecoin, meaning the traders will need to deposit stablecoins as collateral when entering the contract. Additionally, any gains will also be paid in stablecoins.
Using stablecoins ensures the traders get a USD-based price exposure and do not even need to have a bank account to enter into an FTX futures contract.
The FTX futures also have backstop liquidity provide program. There will be minimal risk of clawback with this program, which is a common problem with futures trading on many other platforms. The program helps provide liquidity for any accounts in danger of going into bankruptcy, eliminating the adverse effects of clawbacks.
Another essential thing to note is that FTX futures are available in quarterly and perpetual futures options. It is essential to know what each type is about before entering any contract.
- Quarterly Futures: Quarterly futures contracts on FTX will expire every quarter at 2 am to 3 am UTC. Once the contract expires, the seller is credited with the collateral amount equal to the expiration price.
- Perpetual Futures: Perpetual futures contracts do not have an expiry date. Instead, these contracts are funded each hour to keep the price in line with the underlying index. Funding ensures the price remains stable without closing the position.
FTX Futures Fees
FTX uses a tiered fees structure based on your monthly trading volume. There are 6 different tiers, with the lowest one being tier 1 that includes traders with the lowest trading volume on the platform. The traders will pay 0.020% maker fees and 0.070% taker fees at this tier.
The fees decrease as the monthly trade volume increases. For example, tier 6 traders with a higher trading volume on the platform (over 50,000,000) will not pay any maker fees. The company only charges them 0.040% taker fees for their futures contract transactions.
FTX does not charge any other fees for futures settlement, and there are also no deposit or OTC trading fees.
FXT will also not charge any withdrawal fees except in specific situations such as making small BTC withdrawals or withdrawing ERC-20 tokens and ETH. Hence, it is generally a cheap platform to use for futures trading.
How To Use FTX Futures?
While you will still need some practice to master things, FTX futures trading is not complicated, whether you are a beginner or an experienced trader. Here are the simple steps you have to follow.
Step 1: Set Up Your FTX Account
If you do not already have an FTX account, the first step should be to create one. However, this is perhaps the easiest part and should only take a few minutes and below are the steps to follow.
- Go to https://ftx.com/ and click on the blue “Register” button at the top right
- Add and confirm your email, create a password and agree to the terms in the window that opens to set up your account
- Once your account is set up, you can secure it by setting 2FA on “Account Security” on the profile settings page
- Also, you have to do KYC verification to deposit and start trading and remove account restrictions
Step 2: Add Funds to Your Wallet
Next, you need to fund your FTX wallet to buy the futures contract. The company makes this easy by providing multiple methods of making a deposit. Also, they have a highly detailed guide for making deposits, which should come in handy if you have difficulties.
That said, you can deposit by connecting your FTX account to an existing crypto wallet or by adding the funds directly using your debit/credit card. FTX lists all fiat currencies they support, but it is important to note that you need to be KYC level 2 verified to deposit.
You can also convert fiat currencies to USD once you have the funds in your wallet, as you only need to click the convert button next to each currency.
Step 3: Search for Futures Contract
Now that you have a verified account with funds in the wallet, you can start the actual futures trading process. The first step is to search for futures contracts by clicking on the markets button on the FTX trading screen.
The “Markets” window will give you a real-time view of all the markets you can trade in FTX, starting with all the futures contracts available.
Under the futures tab, you can see the ticker, name of the futures contract, 24-hour volume, price, daily change, and open interest, as shown in the screenshot below.
You will get one of the largest collections of altcoin futures on the FTX exchange, and so you should take time to go through the available contracts before deciding what to buy.
Moreover, there are also timed futures. From the screenshot, you can narrow down your contract options by choosing the monthly futures that expire at the end of December 2021, quarterly ones that expire in march 2022, or even the perpetual futures.
Step 4: Choose Your Preferred Futures Contract
Once you decide the futures you prefer to trade, you should select the specific contract from the list. The site will then redirect you to the trading console. Here is how the trading console looks like.
The console will give you all the information you need to keep track of your position. It includes graphs, index information, the price of your futures contracts, and the contract’s expiry date.
Step 5: Add Collateral to Your Wallet
Below the console, you will see the order book, order execution tab, and market trade tabs. Use the order execution to add collateral to start trading if you are yet to do it. While at it, you also need to set your leverage. FTX will give you maximum leverage of 101x.
Another important thing you will need to do at this step is to choose your order type. Here 6 different options will pop out of the drop-down button: limit order, market order, stop market, stop limit, trailing stop, profit, and profit limit. However, keep it at the default limit order type and execute your order.
Step 6: Monitor Your Positions
After executing your order, the only thing remaining is to keep track of your position. You can keep track of things like the price through the grid or by checking it on the trading console with a reference line.
The FTX console is also quite customizable. As a trader, you can even add several indicators to it. What’s more, you can also check any of your previous positions if you need to refer or compare something.
Provided you keep the collateral in your wallet, you can easily trade futures contracts in the FTX exchange.
What Is Initial Margin in FTX?
The initial margin is the minimum amount required by the FTX exchange to initiate your futures position.
The actual margin you need will depend on your initial margin fraction. FTX requires the initial margin to be 5% for traders investing in small positions, meaning you cannot open a position with leverage above 20x.
When trading futures on FTX, you can only increase the size of your position if its margin fraction remains above your initial margin fraction.
The higher the initial margin, the smaller the leverage you can use and hence the smaller the position you can open. For example, if your initial margin fraction is 10%, you can use maximum leverage of 10x (1/10%).
With the 5% initial margin fraction, your full position for a $1,000 collateral can be up to $20,000 with the 20x maximum leverage. However, with 10%, it will be half that ($10,000) with the same collateral.
What Is Maintenance Margin in FTX?
The maintenance margin is the minimum amount of collateral you will need to maintain your position at any given time without triggering liquidation.
Your margin fraction should not fall below the maintenance margin fraction. Falling below the fraction will trigger automatic liquidation order from the FTX trade engines, and hence closing your position.
The maintenance margin fraction will typically start at around 3% and keep increasing as the size of your position grows. You can check your maintenance margin requirements in your order summary, and it is vital to keep track of it as you trade futures.
Funding Rates in FTX
FTX funding rates are periodic payments for long and short trades. They are based on the difference between spot prices and perpetual contracts. Therefore, your position determines whether you receive the funding rates or have to pay them.
The main goal of FTX funding rates is to ensure price divergence between the different platforms’ different markets is not long-lasting. The FTX trading engines will calculate the funding rates every hour, meaning they do it around 24 times per day.
Below is an example of the funding rates from different cryptos on the FTX platform.
FTX is one of teh best crypto exchanges for trading futures. They offer a fairly straightforward platform that most beginners will have an easy time understanding, high leverage of up to 101x and they allow futures trading for over 80 digital coins.
However, like with all other cryptocurrency investments, it is essential to understand how futures work before getting into it to avoid loss.
This guide explains the key things you need to know, but you still need to make sure you trade carefully, given the high volatility of the crypto market.
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