Risks of Trading BTC/USDT Futures

Two of the primary cryptocurrencies that are utilized in trading on crypto futures are Bitcoin (BTC) and Tether (USDT). BTC is the biggest cryptocurrency in terms of market capitalization, while USDT is a Tether, a stablecoin with a 1:1 tie to the US dollar. If preferred, trading BTC/USDT futures contracts involves the following risks.

Leverage and Liquidations

The leverages that are used in trading btcusdt futures are among the greatest risks. Crypto futures trading also provides traders with a high open position, which, in fact, means that a small margin deposit can control a much larger total position value. 

For instance, a 1BTC position with 50x leverage implies that the trader has control over 50 BTC equivalent of the asset. 

These enhanced gains and losses can cause margin calls and force liquidation in case the market is going against the leveraged trade. Slippage, which occurs when big orders trigger price movements in fast markets, is another disadvantage.

Exchange and Counterparty Risk

Traders, therefore, also need to consider the counterparty risks when choosing their bitcoin futures or their crypto trading platform. 

Exchanges are also capable of becoming hacked, halting withdrawals, or even going bankrupt – with trader’s money on the line. They can reduce exchange risks through conducting audits, insurance policy analysis, and management teams and regulatory compliance.

Volatility and Price Swings

Similar to most cryptocurrencies, bitcoin is highly experimental, meaning it is exposed to drastic fluctuations in value. 

When comparing Bitcoin with Amazon stock, NYDIG established that the digital currency’s annual volatility stood at more than 5X that of the share. Such oscillations in either direction can seriously destroy highly leveraged BTC futures trades very soon. 

This is true even for novice traders who were trading using great risk control and have been trading for many years; they have lost a lot of money trading bitcoin futures during capitulatory volatility events.

USDT Stablecoin Risks

While USDT is supposed to maintain a 1:Stablecoins pegged at 1 to the US dollar, there are still concerns about the reserves backing the stablecoin. Investigations into the company could also potentially lead to people redeeming their USDTs for dollars, which pulls the price below $1. 

This tail risk presents a significant threat to traders who are holding USDT or BTC/USDT at that position. In addition, both the high volatility in BTC and the strong correlation between bitcoin and USDT can lead to highly volatile BTC futures.

Tracking Error and Basis Risk

The spot price of bitcoin and BTC futures also present a large basis risk. This basis spread includes components such as interest rate differential, the demand for leverage, and counterparty risks that distort the relationship between spot and future prices. 

If this tracking error continues to grow at an exponential rate, both the profitability of arbitrage and spread trades between the BTC spot and BTC futures markets can be compromised.

Tax Implications

Lastly, those engaged in active trading of the crypto futures have to deal with the intricate tax reporting of cryptocurrencies. 

Due to the high level of fluctuation, high risks, and leverage together with daily/hourly trading possibilities – short-term capital gains tax liabilities may be rather prohibitive. The lack of tax credits on the gains made on profitable bitcoin investments can easily make good trading strategies come out losers.

BTCC platform provides the perfect platform for bitcoin trading and minimizing risks associated to it.

Therefore, futures and margin traders are faced with several risks originating from Bitcoin and tether. For trading in BTC/USDT futures or margins, one should be careful of the following: Inherent price fluctuations, exchange risks, fluctuations in stablecoins, leverage collapses, disparity in the basis, and complicated tax laws. 

The practice of disciplined risk management strategies aligned with the above-discussed unique risks of trading cryptocurrencies can enable investors to survive such an unstable environment.