Crypto trading is a lucrative space where you can find different markets to trade and make money. However, among all the market types, two preferred markets for crypto trading are Margin Trading and Futures trading.
While trading in both these markets is pretty similar. However, when it comes to the fundamentals of these two markets, you would see a lot of differences.
Hence as a trader, you must know the Crypto Margin Trading vs Crypto Futures market differences. So you can pick a market suitable according to your risk appetite and trading skills. And this article will guide you with this only:
What Is Crypto Margin Trading?
Margin trading is pretty similar to spot trading. But what makes it different from its counterpart is the leverage.
Margin trading allows crypto traders to borrow funds against their current funds. So they can trade crypto with a margin on an exchange.
These borrowed funds are known as leverage that can increase a trader’s buying power. As a result, they can open bigger trading positions for potentially higher profits.
However, when you are borrowing funds from the market to open your trades, you will have to pay interest to the lenders at a rate based on the market demand.
You can open a margin trade by providing some amount as collateral. The collateral is known as the margin.
For instance, if you want to open a margin position for $10,000 and the leverage is 10:1, then you will need to have $1000 in your account as the collateral or margin.
However, if your trade goes on the losing side, then the exchange will use this collateral balance to close your trade. This is known as the Margin Call, and you can prevent it by adding more collateral to your trading account.
But the good part about margin trading is that you can open your positions for as long as you wish to.
However, you must ensure that you have enough funds in your account to keep the position going on. Also, depending on how long you are keeping your trading position open, you need to pay interest based on the market price.
What Is Crypto Futures Trading?
Crypto Futures are derivatives products. It is some sort of contract between two parties to buy an underlying asset, such as Bitcoin, at a specific price and at a specific date in the future. Plus, these contracts do come with an expiry date or, you can say, a settlement date.
Moreover, crypto futures gives you the ability to trade the market volatility. This means you can predict whether the price of an underlying asset will go up or down. This way, you can open up both long and short positions in the market.
And on the expiry date of the contract, you will either make money or lose money based on how your trade performs.
However, crypto futures is considered to be a risky market. As it offers you high leverage for your trades.
For instance, with Binance, you can get 125x leverage for your trades. This means with $100, you can open a position worth $12,500.
Also, there are different types of futures contracts, such as USD-M Contracts, Coin-M Contracts and Perpetual Contracts.
However, the most popular contract type among crypto traders is Perpetual contracts which are tradable across exchanges like Binance, Bybit, Kraken, and more.
The best part of Perpetual contracts is that it doesn’t have an expiry date. Instead, it has a funding rate that charges you a funding fee every 8 hours. Also, unlike margin trading, you don’t have to pay interest to the lenders for borrowing funds.
Crypto Margin Trading vs Crypto Futures Trading: Key Differences
- Markets & Trading assets
Margin trading and Futures trading are two separate markets. On one side, all the margin trades are executed in the spot market. On the other side, future trading happens in the derivatives market.
Along with that, margin trading also offers you a wide range of trading pairs. As multiple currencies are paired together, like BTC/ETH. In this case, you are speculating on the relative performance between Bitcoin and Ethereum.
However, with crypto futures, you don’t get a wide range of trading pairs. Instead, there is a cryptocurrency backed by major cryptos like BTC, USDT, or BUSD.
- Daily Interest Payments
Both margin trading and perpetual futures trading will incur daily charges. For margin trading, you will have to pay interest fees, and for perpetual contracts, you will have to pay funding fees.
These daily charges can lower your profit if you hold onto a trade for a long period of time. However, you can avoid these fees if you choose to trade quarterly futures contracts.
If you want to open high-volume trades, futures trading would be a better choice. As it offers you extremely high leverage compared to Margin trading. With margin trading, you access up to 3x to 10x leverage, depending on if you are using isolated margin or gross margin.
But with futures, the leverage can be as high as 125x. However, you should know that different assets have different leverage. So for not all the assets, you will get the same 125x or 100x leverage.
- Expiry Date
Margin trading doesn’t have an expiry date. You can hold your positions for as long as you want. There is no set date when you have to close your trade.
However, futures contracts do have an expiry date, and the contract will automatically get closed on the expiry date and go for the settlement process.
But, when you are trading perpetual contracts, which is most common, you don’t have to worry about the expiration date at all. But knowing about funding rate charges would be helpful.
Crypto Margin Trading vs Crypto Futures Trading: Which One To Choose?
Futures trading is much more straightforward than margin trading if you are trading USD-M contracts. This contract allows you to calculate your returns and losses in fiat currency or USDT.
Also, there is no need to worry about replaying your borrowed funds. Just deposit the required collateral fee, and you are ready to open a futures position.
But do ensure to maintain enough balance to avoid your account being liquidated.
Plus, futures trading allows you to open both long and short positions.
But with margin trading, if you believe that Bitcoin will outperform Ethereum in the long term, then you would have to short the BTC/ETH pair, which can be confusing.
However, unlike futures trading, margin trading offers you low leverage, which can help you to manage your risk. But in crypto futures, you can also lower your leverage to keep your funds safe.
So that was a quick comparison for the Crypto Margin Trading vs Crypto Futures trading. Both markets are similar in trade.
A trader can open both long and short positions. Both markets are vulnerable to liquidation and have some sort of charges. But it is the fundamentals that make one market different from the other one.
In the end, as a trader, it is your decision to make which market is more suitable for you and your trading needs. So do check the funding fee, interest fee, and other details to find the perfect crypto trading market.
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