Understanding the fundamentals of crypto trading teaches you about the characteristics of various cryptocurrencies and the risks involved in them. With time you’ll also learn which cryptocurrencies offer good returns and which of them are potential bad investments.
You will also eventually learn about futures trading in cryptocurrencies as you go along this learning curve.
Learning about Futures trading is a great starting point for your cryptocurrency trading journey. However, we will recommend not to start trading before learning all the fundamentals first. In case you can’t find the time or find understanding these indicators too challenging than fear not, we are here to offer help.
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So, what exactly is futures trading? And how is it different from trading cryptocurrency on the spot market?
The use of cryptocurrency has seen a meteoric rise in popularity in the past couple of years where almost everyone is constantly connected to the internet and captivated by conventional media.
The desires of the newcomers have been stoked as a result of this, and in turn, they are racing towards the exchanges.
When it comes to trading, you can go for popular options such as spot trading or futures trading. When it comes to spot trading, it is best suited for those who are apprehensive about taking significant risks but are interested in purchasing cryptocurrency and keeping it for a certain amount of time.
On the other hand, futures trading is all about taking risks to earn enormous profits by capitalizing on changes in the market. These profits are made possible by taking advantage of the fluctuations in the market.
Since cryptocurrencies are now experiencing high degrees of volatility, traders may seek to optimize their gains, which Futures trading may be able to do for them.
This article aims to teach you how to trade cryptocurrencies using a financial instrument known as futures trading. So let’s get started with crypto futures trading 101.
What is Crypto Futures Trading?
Trading in cryptocurrency futures is distinct from trading cryptocurrencies on spot in a number of ways, one of which is that participants in futures trading don’t need to own any assets in order to take part.
Instead, traders try to buy or sell derivatives contracts, which reflect a certain cryptocurrency’s value at a specific time period in the future. These contracts can be bought or sold in the present. These contracts are open to either side to buy or sell at their discretion.
In its most basic form, futures trading presents investors with the option to wager on the value of a cryptocurrency at some point in the foreseeable future. Traders have the choice of going long to profit from an increase in price or going short to prepare themselves for a decrease in price.
It is well acknowledged that one of the most significant benefits of futures trading is the availability of leverage. As a result of the fact that market participants do not have to invest their entire sum of money all at once thanks to leverage, the utilization of capital may be leveraged more efficiently. As a result, it increases the likelihood of gains and the chance of losses; as a result, traders need to proceed with extreme caution at all times.
It is common practice to believe that leverage of 2x or 5x is ideal for individuals who are just beginning their careers as futures traders. In particular, for traders and investors who are interested in adopting crypto derivatives as a risk management tool for their portfolios and who are considering using crypto derivatives in the first place, this guide is for you. In the event that a cryptocurrency underperforms or moves in the opposite direction of what was expected, a futures contract that was hedged against this occurrence with a certain degree of leverage might recover some of the capital that was put in the cryptocurrency to compensate for the loss. If the price of a cryptocurrency moves in the opposite direction of what was expected, a futures contract that was hedged against this event with a particular amount of leverage might make up for the loss.
How do crypto futures trading function?
When discussing a crypto futures contract, the following three aspects are regarded to be its most important components:
1- What is the date when the bid expires?
This refers to the date the futures contract must be settled. In other words, one party is required to purchase, and the other is required to sell at a previously agreed-upon price.
It is important to note, however, that traders can sell their contracts to other investors before the day on which the settlement will take place if they so want.
2- What is the total of the units for this contract?
This varies from platform to platform and determines the amount each contract is worth of the underlying asset. It also specifies how much each contract is worth.
The value of one bitcoin futures contract will vary on different exchanges, for instance on Binance it will be close to BTC market price and on KuCoin it will be slightly different from Binance.
3- How much leverage do we have here?
Users of exchange are allowed to borrow funds to raise their trading size. This enables traders to maximize the possible earnings they may generate from their futures bet.
Again, the leverage rates are quite different amongst the different platforms.
Some platforms can supercharge their transactions by up to 50x, while others may only leverage their accounts by up to 20x.
The following procedures may be used to complete the settlement of a futures contract:
1- Deliver it through physical methods
This indicates that the buyer will acquire bitcoin and get it after the transaction is settled.
2- Could settle it with cash
This means there is a cash transfer (often in U.S. currency) between the buyer and the seller when the transaction is finalized.
What are the best platforms for crypto futures trading?
Crypto-based futures contracts have seen exponential growth in popularity in recent years. As a result, you may now start trading crypto futures on a wide range of standard and cryptocurrency platforms.
The following are some prominent examples of platforms that facilitate this sort of trading:
How to trade cryptocurrencies using futures trading?
Trading in futures is not as simple as trading on spot. It requires a deep understanding of the market and how it moves and what is the impact of external factors over the market movements.
Because there is such a large quantity of information to analyse, it should come as no surprise that many people who have never traded before struggle to find their footing and, ultimately, fail to turn a profit. In a similar manner, they lack the necessary knowledge and expertise to effectively negotiate the market, which stops them from reaching their full potential and preventing them from reaching their full potential inhibits them from reaching their full potential. As a direct result of this, it is of the utmost relevance to approach each and every transaction with a methodical frame of mind.
Before beginning to trade futures, a trader should carefully consider and complete the steps outlined in this section.
1 – Develop an appropriate trading strategy
To develop an appropriate trading strategy requires more than just duplicating a very lucrative technique that was discovered on social media or YouTube.
A successful trading strategy has to be tailored to the trader in terms of the trader’s psychological characteristics, lifestyle, degree of risk sensitivity, and long-term goals.
To identify the solution that works best for you, consider the following points:
- Determine the kind of trader that you are.
- Work out how much you can stand to lose and what your long-term monetary objectives are.
- Define the limits of your trade so that they fit in with your personality.
- You should assess the effectiveness of each factor and how you manage to work with them.
- Make modifications if you have issues.
2 – Establish a solid course of action
With the help of a trading course of action, you might be able to improve both the consistency of your trading and your capacity to control risk.
When formulating a trading strategy, it is essential to have a detailed plan outlining the manner in which you will enter and exit positions in the market. This map ought to include signals of entry and exit, position-sizing, and stop-loss locations.
One of the numerous benefits of having a trading strategy is a reduction in the amount of tension that is experienced during the trading day. Another benefit of having a trading plan is a reduction in the number of transactions that are missed out on. Traders who want to make highly concentrated advancements and take trading seriously need to improve their level of self-awareness of their trading habits.
3 – Effective Risk Management
In order to be successful in trading, risk management is the single most important factor. To begin started, all you need to do is establish the boundaries between what you perceive to be acceptable and unacceptable losses in a transaction.
When you are trading futures, you should think of each dollar as being worth one hundred times what it actually is. If the value of your fund is $5,000, you should do all in your power to minimise any losses that are greater than fifty dollars.
If traders want to keep their eyes on the big picture over the long haul, they must approach each transaction with a well-thought-out strategy in hand. It is vital to win in moderate amounts spread out over a prolonged length of time in order to build a respectable account.
The prevention of letting one’s emotions to drive trading decisions can be helped along with the protection of one’s money, the formation of appropriate expectations, and the management of risk through the use of strategies.
4 – Trade Wisely
Trading based on emotions or compulsive impulses is both a type of risky behaviour that can put a stop to a profitable trading career, and both of these behaviours can be found in emotional trading.
Trading futures requires a reasonable strategy, which includes avoiding “lucky runs” and letting losses stand, two tactics that may help safeguard your money from the quick accumulation of losses that can occur in this market. Futures trading also demands a logical plan.
5. Learning on an Ongoing Basis
People are continuously talking about Bitcoin and other cryptocurrencies because they represent a new asset class, and this is one of the reasons why. As a direct consequence of this, people are consistently working toward the goal of enhancing the underlying technology of these cryptocurrencies. Working in this industry is so interesting since it is continually evolving, which is one of the reasons why it is such a dynamic field.
If you want to remain on the edge of success, it is vital that you keep up with the latest advancements in the blockchain sector and that you never stop looking for new ways to improve your trading skills. Only then will you remain on the verge of success. Education will always be of assistance in producing more definitive perspectives into the subsequent market swings, thereby assisting you in preparing for what is to come in the future.
Trading futures is a risky activity; thus, if you are thinking about investing in cryptocurrencies, you should create an account with a crypto platform and receive a wallet to put your cryptos in. Futures trading is also a speculative activity. When it comes to investing in cryptocurrencies, you should not focus on trading for quick returns but rather on purchasing and keeping for the long term.
While on the other side, if you have been seeking a highly unpredictable asset to trade, cryptocurrencies, and bitcoin, in particular, could be your best choice for day trading methods and short-term trading strategies. These techniques include trading for a period that is less than a day.