Futures vs. Crypto Trading: Why Futures Hold the Upper Hand

The following article on Futures vs Crypto is the opinion of Optimus Futures.

• Crypto trading may offer big returns but comes with high volatility and regulatory uncertainty.
• Futures trading provides more stability, transparency, and liquidity due to strict regulations.
• Bitcoin and Ethereum futures let you tap into crypto while benefiting from the security of the futures market.

As finance becomes increasingly tech-driven, younger traders are flocking to crypto for those promised big gains and groundbreaking changes. But while crypto’s got the buzz, the futures market might be the steadier, more structured path. It all comes down to the kinds of risks you’re willing to take.

Let’s break it down: We’ll weigh the pros and cons of each and show why futures trading could be the better pick for short-term traders. But first, let’s cover the basics.

Understanding Futures Trading

Futures trading involves contracts that obligate the buyer to purchase, and the seller to sell, an underlying commodity or asset at a future date and price. Some of the underlying assets are deliverable, others are cash-settled (most traders close or roll over their contracts before expiration).

The main point: Futures markets are tried and true, with standardized rules and strict regulations. This means more security and reliability, making the whole trading process a lot smoother.

Understanding Crypto Trading

Cryptocurrency trading means buying and selling digital coins like Bitcoin, Ethereum, and tons of other altcoins. The crypto market never sleeps—it’s 24/7 and packed with big potential returns.

But here’s the catch: it’s also loaded with risks, from regulatory uncertainty and security issues to the ever-present threat of market manipulation. The promise of big returns and revolutionary changes comes with these risks (which may or may not be suitable for you as a trader).

Differences in Regulation and Security

The Futures Market

• Regulation: In the US, futures are regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). This regulation means more transparency, less fraud, and better protection for traders.

• Security: Centralized exchanges and clearinghouses provide robust security measures that can significantly reduce the risk of hacking and digital fraud.

The Crypto Market

• Regulation: The crypto market is still figuring out its regulatory framework and is mostly unregulated (for the time being). Since crypto is decentralized by design, it doesn’t easily fit into the traditional regulation framework.

• Security: Even with blockchain tech, crypto exchanges are still at risk for hacks. There have been quite a few big breaches in the past, leading to major losses for traders and investors.

Market Stability and Fundamentals

The Futures Market

• Stability: Futures markets benefit from the stability of traditional financial systems. The prices of futures contracts are influenced by measurable factors such as supply and demand, interest rates, and economic indicators.

• Fundamentals: While futures prices are largely unpredictable, commodities, indices, and currencies are all driven by economic fundamentals. These are measurable and can give traders valuable insights when making market moves.

The Crypto Market

• Stability: The crypto market is notorious for its extreme volatility. Prices can swing wildly based on speculative news, market sentiment, and even social media trends.

• Fundamentals: Most cryptos aren’t really used as “currencies” but more like speculative assets. Right now, there’s no standard way to measure fundamentals in this space since most cryptos don’t yet meet any existing economic demand—though that could change down the road.

Liquidity and Market Depth

The Futures Market

• Liquidity: Most futures markets are highly liquid, with significant trading volumes and market participants. These are the more commonly traded instruments, like indices, bonds, crude oil, and gold. Liquidity ensures that trades can be executed quickly and at desired prices.

• Market Depth: With institutional investors, commercial hedgers, and retail traders all in the mix, we can assume that the futures market has serious depth. This helps cushion the impact of big trades on prices.

The Crypto Market

• Liquidity: Major cryptocurrencies like Bitcoin and Ethereum have substantial liquidity, but many of the 25,000+ altcoins don’t. This lack of liquidity can result in slippage and unfavorable trade executions.

• Market Depth: Besides BTC and ETH, market depth for many of the other altcoins can be exceedingly small. After all, we’re talking more than 25,000 other coins. This means that a few big “whale” trades can shake things up and obscure the real supply-and-demand scenario for a given coin.

Transparency and Information Availability

The Futures Market

• Transparency: Futures markets offer high transparency with readily available information on trading volumes, open interest, and price movements. This transparency helps traders make informed decisions.

• Information Availability: Established financial news outlets and analytical tools provide comprehensive coverage and analysis of futures markets, aiding in decision-making.

The Crypto Market

• Transparency: The decentralized nature of crypto markets can obscure trading activities. Lack of centralized reporting can make it difficult to obtain accurate information on volumes and market sentiment.

• Information Availability: While there is a wealth of information available online, the quality and reliability of crypto analysis can vary widely. Misinformation and hype can mislead traders.

Risk Management

The Futures Market

• Risk Management: You can hedge futures with options, equities positions (index funds, for example), or, in the case of commercial investors, the underlying asset itself. These risk management strategies can add a layer of security for traders.

The Crypto Market

• Risk Management: Bitcoin and Ethereum have equivalents in futures contracts and a few equities ETFs, Stablecoins also have relative equivalents in currency (the US dollar), futures (dollar index), and ETFs (dollar index funds). But for the other 25,000+ cryptos, there’s no real way to hedge against price swings except through diversification—which isn’t a direct hedge.

The Advantage of Futures Trading Over Crypto

So, here you have it: Futures trading offers a structured and regulated environment that brings more security, stability, and process reliability to the table.

With standardization, high liquidity, and deep market participation, futures markets provide a smoother trading experience. Unlike the crypto world, where regulatory uncertainty and extreme volatility reign, futures markets benefit from transparent pricing driven, more or less, by economic fundamentals (real supply and demand conditions).

Plus, risk management options in futures are more robust, allowing you to hedge effectively—a clear advantage over the often unpredictable and unregulated nature crypto market, which, as you’ve seen, can have serious booms and busts.

READ ALSO | Micro Bitcoin Futures | A Lower Cost, Regulated Way to Trade Crypto

Comparison In a Nutshell

Comparison Criteria	Futures	Cryptocurrencies
What are you buying?	Contracts for future delivery of assets	Digital currency
How long can you hold it?	Until contract expiration	Indefinitely
What can you trade?	Commodities, indexes, currencies, and even BTC and ETH.	25,000+ cryptocurrencies
Leverage*	Varies, typically 10:1 to 30:1	Up to 200:1 depending on the exchange.
Risks	Market volatility, margin calls	Market volatility, margin calls, liquidity risk, security breaches, regulatory uncertainty
Who are you trading with?	Market participants via a centralized exchange	Market participants via a centralized or decentralized exchange; liquidity providers facilitate transactions on exchanges
Regulation	Regulated by CFTC in the US	Less regulated, varies by country
Price Transparency	Very high due to centralized exchanges and regulatory oversight	Price varies according to the liquidity provider
Counterparty risk	Very low as exchanges often mitigate counterparty risk through clearinghouses	Higher due to potential exchange vulnerabilities​

The Bottom Line

Crypto trading can be exciting with the potential for big returns, but it’s also a risky, volatile ride. Futures trading, on the other hand, offers a stable, regulated, and transparent environment.

Want a balance? Try Bitcoin and Ethereum futures—you’ll get the security, liquidity, and reliability of a regulated market while still tapping into the crypto trend.

LEARN MORE ABOUT CRYPTO FUTURES HERE

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. The initial margin required is small compared to the futures contract’s value, making transactions ‘leveraged’ or ‘geared.’ A modest market movement will have a larger proportional impact on the funds you’ve deposited or will need to deposit; this can work for and against you. High leverage may result in deficits.