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Introduction to futures
Our guide to futures trading for beginners
If you're hardly a newbie trader, move on to the detailed description of futures trading on Spin. Or enjoy refreshing your knowledge to be 100% sure that you are a master of futures trading.
A futures contract is an agreement between two parties that commits one party to buy (or sell) an underlying asset and another party to sell (buy) that asset on a specified date and at a pre-determined price in the future. The underlying asset can be whatever – commodities, stocks, or crypto.
For better understanding, let us give you an example of how futures work:
Imagine you mine Bitcoin and you're sure that in 3 months you will have 1 BTC at your disposal. You know your mining expenses and are sure that the price of $30K for 1 BTC will be perfect for you to get some revenue. Thus, you deposit some money (BTC, USDT, or even USD) to open a short futures position (sell BTC at $30K in 3 months). Your counterparty (another trader) is at the same time confident that BTC will grow in price, thus he or she wants to buy 1 BTC at $30K in 3 months. This results in a win-win deal, and both parties will have to meet their obligations.
Basic futures use cases include speculation (as described in the case of your counterparty who believes that BTC price will increase) and risk hedging (the case of the miner, who wants to protect his revenue from volatility).

Leverage

Futures trading is leveraged which means that the trader can get exposure to larger capital with less collateral required. Say, you have $10,000 and would like to open a position worth $30,000. Not an issue, you will have to trade with x3 leverage. But always take into account that every price movement will be multiplicated by 3 meaning that if the BTC price is $30K, and it drops by $1K, you will earn $3K if you hold a short (sell) position, or lose $3K if your position is long (buy). More opportunities always come with more risks!

Margin

Futures initial margin is the amount of money you are required to keep in your account to enter into a futures position (long or short), as a percentage of the full value of the futures contract.
To keep the position open you will need a maintenance margin – some free capital on your account that is used to cover potential losses.
In general:
If your margin > initial margin – everything is fine and you are able to open new positions.
If initial margin > your margin > maintenance margin – you can't open new positions but you're not subject to liquidation.
If maintenance margin > your margin, then your position might be liquidated.
On Spin, there's no initial and maintenance margin, both of them refer to the collateral.
Liquidation means that losing positions are forced-exited to prevent traders from falling into a negative balance. The larger is the leverage, the higher is the risk that the position will be liquidated as a result of a minor price movement, so traders need to be very careful when choosing the leverage.

Quick summary

Pros
Cons
Traders can use futures to speculate on the direction in the price of an underlying asset.
In case the trader's prognosis is incorrect, the position can be liquidated which results in losses.
Futures allow for hedging the risks of price movements.
At the same time, risk hedging may cause missing out on some potential revenues.
Futures require a deposit of a fraction of the contract amount, not the whole sum.
Futures are associated with leveraged trading which amplifies both potential returns and losses.

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Leverage
Margin
Quick summary