Futures on Nexo: A Beginner’s Guide
Nov 14, 2023•6 min read
Want to know more about Futures before trading on Nexo? Then it’s time to delve into perpetual contracts, leverage dynamics, margin risk, and more. Let’s begin!
What Are the Types of Futures Contracts?
There are two types of Futures contracts you should be familiar with. Both types allow you to gain exposure to an asset without owning it and both are designed to track the price of an underlying cryptocurrency.
- Expiring Futures: These are contracts that represent an agreement to buy or sell an asset at a predetermined price with a specific expiration date. Once the date is reached, the contract is settled.
- Perpetual Futures: What sets perpetual contracts apart is that they don't have an expiration date and you can keep them open indefinitely.
The price of Futures contracts isn't set by the platform or a fixed formula but by the balance of supply and demand for the underlying cryptocurrency. Currently, on the Nexo app or web platform, you can trade Perpetual Futures by using over 90 contracts. These contracts are settled in USDT, meaning you only need USDT to trade.
Going Long or Short
Imagine you believe the price of an asset XYZ will rise in the near future. Since you’re not seeing it as a long-term purchase, instead of buying XYZ today, you decide to enter into a Perpetual Futures contract that allows you to gain exposure only to its price movement. It’s said you have a long position. On the flip side, if you think the price of asset XYZ will go down, you open a “short position”. As there is no expiration date, you can maintain this position as long as you wish, provided you manage your margin risk.
(cta-block: Dive into a bite-sized course to learn how Perpetual Futures can be compared to a game of tug of war. title: Want to Know More? button: Start Learning link: https://bits.nexo.com/courses/investing/what-are-perpetual-futures)
What is Leverage and Margin Risk in Futures?
Leverage in Futures trading refers to the ability to control a large position with a relatively small amount of capital. Think of leverage like this: With $100 of your own asset and 10x leverage, you can control a $1,000 position. If the asset's price rises by 10%, you are up $100, doubling your initial amount. But if it drops by 10%, you lose your $100. The $100 you used as an initial investment is called margin - the amount you offer as collateral in case your position gets closed. If a trade starts going unfavorably and there isn't enough collateral, your position gets “liquidated”. This means the position is forcibly closed, and it's done based on the mark price, which represents the estimated true value of a contract. Leverage can amplify both profit and loss in trading. As you engage in leveraged trading, it’s essential to understand Margin Risk. This term refers to a percentage indicator that shows you the likelihood of your position being closed due to insufficient collateral. Your Liquidation Risk is considered High when the Margin Risk indicator exceeds 78%. You can find out how the Margin Risk is calculated in our support article. In these situations, the safest course of action is adding more USDT as collateral. If you decide to lower the leverage on an open position, keep in mind that the change will apply to all your open positions. On Nexo, you add USDT collateral used for trading via a dedicated wallet called the Futures Wallet. It is where you manage your USDT funds specifically for your Futures trades. For an in-depth look at the Futures Wallet, explore our support article.
Maximum Leverage for Futures Contracts on Nexo
The minimum leverage for a single trade is always 2x, and the maximum varies between 10x and 50x depending on the Futures contract. Only the following can be traded with the maximum of 50x leverage:
BTC
ETH
SOL
XRP
DOGE
DOT
LINK
LTC
EOS
BNB
1000PEPE
1000BONK
1000SHIB
The maximum position size also varies with each contract with the highest being 50,000 USDT for BTC and ETH.
How to Trade Futures on the Nexo App?
To begin trading, you only need to complete a short quiz and transfer USDT to your Futures Wallet. Transferring USDT to your Futures Wallet is instant and free, so you can switch from earning interest to trading in seconds. Once you’ve added USDT, here's how it works.
- Tap the Exchange button on your dashboard and select Futures.
- Select an asset from the list with perpetual contracts.
- Pick a direction - long or short - and adjust your leverage.
- Choose how much USDT you want to allocate to the position.
What Are Trigger Orders for Futures Trading?
On Nexo, you have three useful tools that can help you manage your trades efficiently:
Trigger Entry Order: This feature allows you to set a specific price at which you want to enter a position. Once the price is reached, a market order will be automatically executed. It’s a strategic way to enter the market at your desired price point, while still keeping up with regular market watching.
To set one:
- Open the order types drop-down and select “Trigger Entry”.
- Enter the price at which you want to open your position.
- Choose how much USDT you want to allocate to the position.
- Preview and confirm it.
Need help? Watch our video guide to better understand how to set your first trigger entry.
Take Profit (TP): Take profit lets you set a target price at which your position for the selected futures contract will be closed to realize profits. It's a useful tool that allows you to secure your gains when the market reaches your target profit price.
Stop Loss (SL): Stop loss is designed to limit your potential losses. You set a price at which your position for the selected futures contract will be automatically closed to prevent further losses. This tool is especially important in volatile market conditions.
How to Set a Take Profit or Stop Loss Order? Once you have an open position:
- Tap on “Set TP/SL”.
- Enter your price targets at which you want to close your trade.
- Confirm the orders.
You can also watch a video explainer to catch up with the details behind the take profit and stop loss order.
How Can I Track My Performance?
When tracking your performance in Futures trading, understanding how Profit and Loss (PnL) works is essential. In Futures trading, Profit and Loss (PnL) is simply the difference between your opening and closing prices. This difference indicates if you’re making a profit or losing funds. When your open positions are showing a profit, this is referred to as a positive unrealized PnL. Having a positive unrealized PnL means you're currently making a profit, but it's not realized until you close the position. On the Nexo Exchange, you can use your positive unrealized PnL as a margin to open new Futures positions. When tracking PnL, you should keep an eye on Funding Rates. They are regular payments you make or receive, depending on whether you’re holding a long or short position. These rates are based on the difference between the prices of perpetual contract markets and spot markets. When the Funding Rate is positive, the price of the perpetual contract is usually higher than the mark price (i.e. the estimated true value of a contract). Thus, traders who have open long positions pay for short positions. On the other hand, a negative Funding Rate means that short positions pay for open long positions.
Are There Risks Associated With Futures?
Futures contracts, while offering potential rewards, come with significant risks. There’s a possibility you might lose the collateral of your open position because of market ups and downs. It’s important to note that these contracts don't protect traders from market volatility. This is why you should be attentive to Margin Calls - an email notification that comes when your Margin Risk surpasses a certain threshold. You’ll receive such a notification if your Margin Risk goes above 78%. In this case, you should either close other open positions or add more USDT to your Futures Wallet to avoid losses. We’ve outlined the essentials you need to get started. Trading Futures on Nexo comes with a standard fee of 0.06% for all users. Don’t forget to manage your positions diligently. Enjoy Futures trading on Nexo.
Futures Trading is restricted in certain jurisdictions. Please note that the trading fees are subject to change based on market conditions and platform policies.