Binance Futures is a new platform launched on 13 September 2019 by binance. Just after one day of getting live they traded around $170Mn with max leverage of 20x. Binance Futures is a platform where experts or speculators can bet on whether prices will go up or down in the future. They predict the price for a future date and trade on that date at the price predicted. So, let us understand what is binance futures in brief with example.
If you don’t have account on Binance, you can’t use Binance Futures. So, if you want to use Futures you have to first create an account on Binance before going forward.
Scroll down to Example to get a full grab how it works.
Just like watching the future, the experts or speculators have to predict the future price of an asset trade at the same predicted price in future. These trades are not settled like instant trades. Instead, it has dates, on which these trades get settles.
The Binance Futures is a contract or agreement to buy or sell commodity or currency at a predicted price at a specific time in the future.
This contract is signed between two users, which includes a future date of settlement. The contract doesn’t require buying or selling a commodity or digital asset. Instead, they are trading a contractual representation of these. And later when that future date comes the actual trading of the asset or cash took place.
How Binance Futures Work with Example
Let’s understand with an example –
There are two users Alex and Bob. They created a future contract through Binance Futures.
One of them will be on the buying side and other or selling side. Considering Alex wants to buy an asset, he will sign the contract predicting that the one Bitcoin will be at $10,000 on 31 December. Once the Alex marked that price now the Seller in our case Bob will sell 1 Bitcoin to Alex at $10,000 no matter what the price of Bitcoin on 31 December.
Now consider this, what happened till now is they set a price to trade for an asset in our case Bitcoin at some future date. Now, no matter what’s the price of the Bitcoin at that specific future date the trade will happen at $10,000 only.
Now there are two things that can happen –
Bitcoin price has gone upwards than the agreed price ie. $10,000 or gone down to $10,000.
If the price went upwards then Bob the seller will bear the loss as he can sell the Bitcoin at a higher rate as per that day’s current market. While Alex will get profited, as he bought the Bitcoin at a lower rate as per current market.
Now, in our example, let’s consider both the cases –
Binance Futures – When the Bitcoin Price went upwards
Now consider on 31 December the Bitcoin price reached to $11,300. But as contracted earlier the Bob has to sell the Bitcoin at $10,000. Bob bears a loss of $1,300.
As Alex bought the bitcoin at the rate what she predicted much before 31 December ie. $10,000 instead of the market price of 31st December $11,300. Get the profit of $1,300.
Just because Alex predicted it right it gets the profit of $1,300 after a specific period of time. While Bob has the bear loss.
Binance Futures – When the Bitcoin Price went Downwards
Now consider on 31st December the Bitcoin price fall to $9,000. But as contracted earlier Bob has to sell the Bitcoin at $10,000. Bob gets a profit of $1000.
Just because Alex predicted it wrong he has to bear the loss of $1000. While Bob gets the profit.
Now, I can feel that you get the basic concept behind the Binance Futures. Though there are several other things like Cash Settlement and that you will find out later on.
For an introduction this part is sufficient. If you want a more descriptive guide you can follow binance future’s official guide here.