Cryptocurrency futures are tools that give investors the opportunity to speculate not on the current, but on the future value of a cryptocurrency. For example, a trader can bet on an increase, opening Long positions, or open Short positions, expecting a decline in the rate.
Investing in cryptocurrency futures opens up more opportunities for portfolio growth. When trading, leverage is available, which can significantly increase income within a single transaction.
Another reason to trade futures is to hedge risks. Such contracts can protect savings when the market moves in the wrong direction. As cryptocurrencies become more widespread and appear in the media with increasing frequency, newcomers are gradually coming to exchanges.
Some traders prefer to simply trade on the spot (buy / sell assets directly with instant settlement), while others are interested in further profit from the market movement.
General information about futures trading
Trading cryptocurrency futures differs in many ways from spot trading. First of all: cryptocurrency futures transactions do not require you to directly buy / sell any crypto assets or store them. Instead, traders buy or sell futures contracts that represent the likely value of a cryptocurrency on a specific date in the future.
Binance futures allow investors to speculate on the value of a cryptocurrency that it will reach in the future. For example, use long and short trades when a rise or fall in the rate of a coin is expected.
One of the most important advantages of Bitcoin futures is the ability to combine them with leverage. Leverage (or «leverage») allows you to use the initial capital in a more efficient way, eliminating the need for a trader to fix the entire volume of his assets in the transaction. Using leverage increases the potential profitability, but so does the risk. You need to trade carefully and choose the right amount of leverage. For example, 1: 2 or 1: 5 is suitable for low risk trading, especially for beginners.
Thanks to leverage, futures can be used as a defensive asset to hedge an investment portfolio. If the market goes in the wrong direction, then a futures contract hedged against that direction can make up for the loss.
Reasons to Trade Crypto Futures
At the very least, this type of trading is worth trying if you want to expand the opportunities for building capital in your cryptocurrency portfolio. Just one trade can generate significant profits through the use of an instrument such as leverage.
The next reason for using futures contracts is the already mentioned hedging. In the case of volatile cryptocurrencies, it can be difficult to protect your portfolio from losses. Futures are a strong line of defense for any investor. They successfully serve as a hedge when investments are heading in the wrong direction.
While spot trades bring an investor profit only if the value rises, futures traders can earn even when it falls. Characteristically, the ability to use short-term or long-term positions provides more flexibility for investors and gives them significant freedom to think about the nearest trading results.
Five Steps to Properly Trading Bitcoin Futures
Trading cryptocurrency assets is difficult enough for everyone, especially beginners. It takes a lot of time to understand the laws of changes in the market, the influence of external factors on it, as well as what motivates people to take part in it. With so much information to ponder, it’s no surprise that many aspiring traders fail desperately to get their bearings. Therefore, a strategic approach to each trade is extremely important.
Choose a trading technique
Finding a suitable trading methodology is not just a reproduction of a highly profitable strategy found on Youtube, telegram channels or social networks. It should be personalized, that is, match your personality traits, risk appetite, financial situation, lifestyle and ultimate goals.
Here are a few factors to consider when choosing the perfect format for you:
- Understand your personality.
- Determine your risk tolerance.
- Set long term financial goals.
- Define trading parameters that suit your personality.
- Analyze the effectiveness of each parameter and your own attitude towards it.
- If you run into problems in the process, don’t be afraid to change something.
Develop a trading plan
A trading plan will help you manage risk much more effectively and improve overall trade consistency. During its development, describe in detail the conditions for entering and exiting positions, indicators for these actions, determine the size of positions and the rules for placing Stop Loss orders.
There are many benefits to having a well-designed trading strategy, ranging from fewer missed trades to less stress throughout the trading day. In addition, with its help you will learn more about your trading habits and will be able to develop more efficiently and take trading more seriously.
Think about risk management
The very first and simplest thing to start with risk management is setting the limits of losses that you consider acceptable or excessive. Trading is impossible without losses. In the case of futures trading, each dollar must be treated as if it was worth 100 times more. In other words, if you have $ 1000 in your account, then it is undesirable to lose more than $ 10 from the transaction.
Considering long-term planning, a trader needs to approach the creation of each order with a clear strategy. It is better to make a profit gradually, in small » portions «, so that over time a decent capital is formed on the trading account. A risk management strategy not only protects funds in the long term, but also saves emotions and makes expectations more realistic.
Stick to Responsible Trading
Excitement, emotions, intuition and impulsive behavior – all this does not work in trading; on the contrary, they are quite capable of ruining your trading career. To mitigate their impact, you should minimize the leverage you use, set realistic goals, and never trade the money that your survival in real life depends on (unless you are a professional confident of success).
Losses tend to accumulate very quickly, and this puts even more pressure on the psyche. Responsible approach to futures trading – calm attitude to losses and absence of steps taken as a result of excitement.
Constant self-education
Every day, something new is created and discussed about bitcoin and other cryptocurrencies. The industry is constantly evolving, which is what makes it so interesting and exciting. It is important to keep up with innovations, as they often determine what happens in the market.
Continuing education in cryptocurrency trading will help increase the chances of success and keep it. Thus, you will create in your head a clear idea of market movements after certain events, you will be able to better plan your actions.
