This is the most basic way to do some trading. You can indicate the amount of the asset and the price that you want to buy or sell, and whenever that price is reached the operation is done.
Usually you can also use the current market price in order to perform the transaction as fast as possible to the current price.
Stop Loss - Limit: You can also indicate amount and the price of the assets to buy or sell while also indicating a lower price to buy or sell in case it's reached (to stop losses).
A future is a contract where 2 parts comes to an agreement to acquire something in the future at a fixed price. For example to sell 1 bitcoin in 6 months at 70.000$.
Obviously if by 6 months the bitcoin value is 80.000$ the seller part loses money and the buying part earns it. If in 6 months the bitcoin value is 60.000$, the opposite happens.
However, this is interesting for example for business which are generating a product and need to have the security that thy will be able to sell it at a price to pay the costs. Or business which want to assure fixed prices in the future for something eve if higher.
Although in exchanges this is usually used to try to make a profit.
- Notice that a "Long position" means that someone if betting that a price is going to increase
- While a "short position" means that someone if betting that a price is going to go down
If a fund manager is afraid that some stocks are going to go down he might take a short position over some assets like bitcoins or S&P 500 futures contracts. This would be similar to buying or having some assets and create a contract of selling those at a future time at a bigger price.
In case the price goes down the fund manager will earn benefits because he will sell the assets at a bigger price. If the price of the assets goes up the manager won't earn that benefit but he will still keep his assets.
These are "futures" that will last indefinitely (without an ending contract date). It's very common to find them for example in crypto exchanges where you can go in an out of futures based on the price of cryptos.
Notice that in these cases the benefits and lose can be in real time, if the price increases 1% you win a 1%, if the price decreases 1%, you will lose it.
Leverage allows you to control a larger position in the market with a smaller amount of money. It basically allows you to "bet" much more money than you have risking only the money that you actually have.
For example, if you open a future position in the BTC/USDT with 100$ a 50x leverage this means that if the price is increased 1%, then you would be winning 1x50 = 50% of your initial investment (50$). And therefore you will have 150$.
However, if the price decreases 1%, you will lost 50% of your funds (59$ in this case). And if the price decreases 2% you will lose all your bet (2x50 = 100%).
Therefore, leveraging allows to control the amount of money you bet while increasing the winnings and loses.
The main difference between futures and options is that the contract is optional for the buyer: He can decide to execute it or not (usually he will only if he will benefit for it). The seller must sell if the buyer wants to use the option.
However, the buyer will be paying some fee to the seller for opening the option (so the seller, who is taking more risk aparently, starts earning some money).
- Futures: When you buy or sell a futures contract, you're entering a binding agreement to buy or sell an asset at a specific price on a future date. Both the buyer and the seller are obligated to fulfill the contract at expiration (unless the contract is closed before then).
- Options: With options, you have the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset at a specific price before or at a certain expiration date. The buyer has the option to execute, while the seller is obligated to fulfill the trade if the buyer decides to exercise the option.
- Futures: Both the buyer and the seller take on unlimited risk because they are obligated to complete the contract. The risk is the difference between the agreed-upon price and the market price at the expiration date.
- Options: The buyer’s risk is limited to the premium paid to purchase the option. If the market doesn't move in favor of the option holder, they can simply let the option expire. However, the seller (writer) of the option has unlimited risk if the market moves significantly against them.
- Futures: There is no upfront cost beyond the margin required to hold the position, as the buyer and seller are both obligated to complete the trade.
- Options: The buyer must pay an option premium upfront for the right to exercise the option. This premium is essentially the cost of the option.
- Futures: The profit or loss is based on the difference between the market price at expiration and the agreed-upon price in the contract.
- Options: The buyer profits when the market moves favorably beyond the strike price by more than the premium paid. The seller profits by keeping the premium if the option is not exercised.