As new companies enter the market, cryptocurrency futures trading gains traction. To begin with , it can be used as an additional tool to help hedge your portfolio while you continue to maximise the effectiveness of your usual trading tactics. Secondly, futures trading in the crypto realm allows you to profit from any market condition.
It's all about anticipating the coin's price, just like in spot trading. When trading bitcoin futures, however, you do not necessarily own the commodity or have to deal with the complexities of storing or selling your digital assets. In fact, you can open short positions for assets that you do not own. Some people avoid futures trading because it appears to be complicated, although it is actually pretty comparable to conventional spot trading.
Crypto Futures Trading - An Overview
Crypto futures trading is a sort of trading that resembles futures trading in traditional markets. It entails the use of futures contracts, which are legal agreements to buy or sell an asset in the future at a fixed price.
Futures trading is a means of speculating on the value of assets such as cryptocurrency without really holding them. Cryptocurrency futures, like commodity or stock futures, allow traders to speculate on the future value of a digital currency. Needless to say, Bitcoin futures are the most popular sort of crypto futures contract at the moment.
In crypto, future trading refers to committing to acquire a particular cryptocurrency at a specific price at a specific time in the future, regardless of the price when that time occurs.
The agreed upon time can range from 24 hours to several years. Because the parties engaged in the transaction frequently base their trades on conjecture about how the asset price will perform in the future, this is sometimes referred to as gambling. Whatever happens, the trade takes place on the agreed-upon date and time, and usually favours just one of the two parties involved.
How does Futures Trading Work?
Futures traders typically speculate on how the price of a crypto asset will behave in the future. Their conclusion may be based on fundamental analysis utilising some metrics or technical analysis, or both, on which they base their prediction that the asset will perform in a certain way on a specific day.
For example, a trader may open a futures short position on a contract to sell Bitcoin at a specific price on October 23, 2022. Someone who plans to make the transaction will open a long position on the contract.
Assuming the agreed-upon price is $30,000 per bitcoin and the current price is $23,000, the seller will earn if the price of bitcoin remains below $30,000, while the buyer would lose.
On the other hand, if the price reaches $45,000 on October 23, they will lose money and the buyer would profit. Futures contracts can only be cancelled before the agreed-upon date. Once the agreed-upon day arrives, the contract must be completed.
Futures traders may borrow funds from the exchanges on which they trade to increase the size of their trades in order to boost their prospective gains. This is known as leverage, and it is expressed in multiples of the original trade amount; for example, for a trade X, the leverage can be 10X, 20X, 50X, or even 100X, depending on the exchange.
It should be noted that borrowing to enhance the size of a trade can backfire if the trade does not favour you. You will be liquidated, and your funds will be gone for good, thus it is a dangerous venture.
What distinguishes it from other forms of cryptocurrency trading?
Significantly, Future trading is different from other kinds of trading. In case of spot trading or P2P trading involves trading of one asset (or currency) for another whereas futures trading involves trading of single assets. These two types of trading are different because the traders of futures trading will not trade on the crypto market directly, instead the trading will occur between a buyer and a seller.
The other major difference between conventional and futures trading is that the trade will not happen instantly or based on the recent asset price. Instead, the futures trading will occur based on the speculated price in the future. Moreover, the traders even don’t own or handle the cryptocurrency he is speculating about.
How to trade crypto futures?
Crypto Futures trading is no different from other trading processes, and the complicated level will depend on the leverage that you choose. The traders should follow most of the valid protocols when trading the spot marketers & other derivatives, it can be CFDs or options. Most of the regulated rules in trading have to do with risk management and analysing the best exit and entry points.
Here are the few steps to be considered while starting the journey of crypto futures trading:
Set Aside Some Money - one of the most important risk management guidelines is to never invest more than you are willing to lose. And, unless we're talking about technical borrowing utilised in margin trading, never borrow to trade.
Dedicate Time - If you want to transform your crypto futures trading into a profitable activity, you should not regard it as a hobby. Make time to study about futures trading, discover the best entry opportunities, and monitor your open positions.
Trade on a demo account - A demo account allows you to begin trading with virtual funds. Before moving on to futures, it usually mirrors the spot price of Bitcoin or another cryptocurrency.
Select a futures trading platform - Reputation is important when choosing a cryptocurrency exchange. So, if you are a beginner, start modestly and trade on a respected exchange.
Trading perpetual contracts will need you to automatically pay or get a rate. However, if the contract's price is higher or lower than the spot price. Also, if you employ leverage, you should keep an eye on the position margin, which varies with the price. If it falls below a specific level, your position will be liquidated, and you will incur a loss.
Best crypto futures trading strategies in 2022
The most renowned and popular crypto futures exchanges provide significant leverage to assist you maximise your profits. As a result, you have the opportunity to earn more money while investing less. However, we cannot deny that the crypto futures market is incredibly volatile. As a result, in order to benefit, you will need the greatest crypto futures trading tactics. Listed below are a few tips to get you going:
PullBack Strategy : one of powerful trading strategies and works based on the price pullback.
Going long or short : One of the finest crypto futures trading methods is going long or short.
Breakout Trading : Breakout trading is another famous trading strategy that is mostly employed in day trading.
Spread Trading : In the spread trading method, you must buy one crypto futures contract and sell another at a different time.
Trading the Range : Trading the ranger denotes a trading bounce off key support and resistance levels on a chart.
Counter-trend Trading : In the Counter-trend trading method, you can pick positions that are inverse to the underlying trend.
Buller and Seller Interest : Buyer and seller interest displays the amount of open buy and sell orders for a cryptocurrency futures contract at various price levels.
How is Crypto Futures Trading profitable?
If effective risk management is used, crypto futures trading can be extremely successful. Regular traders may find this pastime more profitable than Bitcoin mining, which needs expensive equipment. This is, nevertheless, the best-case situation. There are significant hazards, like with any form of trading, that should not be overlooked.
Tips that every futures trader should know
Success in futures trading can bring big gains, but mistakes can be exceedingly costly. That is why it is critical to have a strategy in place before you begin trading. Here are seven ideas for getting started.
Establish a trade plan
Protect your positions
Narrow your focus but not too much.
Maintain a steady trading pace
Think of long & short
Learn form Margin calls
Try to have a longer-term view in mind.
Final Thoughts
Both institutional and individual traders prefer cryptocurrency futures due to their ease and reduced danger of cyber attacks than the spot market.
Crypto futures are still more popular than crypto options, which are another sort of derivative. In an option contract, the buyer has the right but not the responsibility to buy the underlying asset in the case of a call option or sell it in the case of a put option at a predefined price within a specified time frame.
Both derivatives allow traders to hedge against volatility risk and experiment with new trading forms that can be more profitable than traditional trading.
There is no doubt that breaking into the cryptocurrency trading market is a difficult task. You can succeed in bitcoin and futures trading if you prepare yourself, study the basics, and then use what you've learned. Or else you can either approach our techies to get a perfect guidance for futures trading.
