A Beginner’s Guide to Crypto Futures Trading

What Is Crypto Futures Trading?

Cryptocurrency Futures Trading differs from spot trading in that traders buy or sell derivatives contracts that represent the value of a crypto at a future date.

Futures trading lets investors bet on the future value of cryptocurrencies. Long-term bets are made on an increase in price, while short-term bets are made on a decline in price.  

Futures trading offers leverage, which is one of its most important advantages. 

Traders can take advantage of leverage when trading cryptocurrency, so that they can maximize their capital efficiency as they do not have to lock up their entire sums. However, they must always exercise caution when using leverage as it increases the risks as well as the potential returns. 

The new trader should consider using leverage of 2x or 5x, particularly if they intend to use crypto derivatives as defensive hedges. This is especially important for traders who are new to crypto derivatives trading. Whenever an asset does not perform as expected, or contrary to what is speculated, a futures trade that is hedged against this outcome using a certain amount of leverage can compensate for the loss.

The 5 Steps to Successful Futures Trading

Trading futures requires an understanding of how the market changes and adjusts over time, how external factors affect it, and how people are influenced to participate. 

New traders have difficulties getting their bearings and eventually bottom out due to the sheer volume of information they have to digest and the lack of experience or knowledge they have. This is why it is so important to follow a strategic approach to trading.

1. Decide what trading method to use

Choosing a trading methodology that suits your psychology, lifestyle, risk tolerance, and long-term goals is more than simply copying a highly profitable strategy found on YouTube or social media. 

2. Create a trading plan

It is highly recommended that you develop a trading plan in order to assist you in managing risk better and improving the consistency of your trading. This should include a detailed description of how you’ll enter and exit positions, as well as position sizing and stop-loss placements. 

The benefits of having a Crypto Futures Trading strategy range from reducing trading stress to missing fewer trades. It is important that traders become aware of their trading habits in order to make highly targeted developments.

3. Managing risks properly

The most important part of trading is managing your risk. This begins with setting boundaries for what you deem acceptable losses under certain circumstances and what you deem unacceptable losses under certain circumstances. 

A futures trader should treat each dollar as if it were worth 100 times its actual value. For example, if your account is worth $1,000, you should avoid losing more than $10. 

With a long-term perspective, traders should win small amounts over time to build a proper account.

The key to protecting capital, ensuring realistic expectations, and avoiding emotional trading is managing risk. 

4.Trade Responsibly

As a result of emotional or compulsive trading behavior, which is considered gambling behavior, a trading career can be destroyed. In order to counteract these psychological traits, you should minimize leverage, limit the number of trades you carry out during a specific period, set conservative trading goals and targets, and never trade with money you cannot afford to lose. 

Futures trading can be risky, so it is important to let losses go and avoid “lucky runs”. 

5. Continuous Education

As a new asset class, Bitcoin and cryptocurrencies in general are constantly discussed and improved, which is why they’re so exciting. 

Keeping up with the blockchain industry and constantly seeking ways to improve your trading skills will help you maintain a competitive edge. With the help of education, you can always plan for what’s to come, as you’ll have more decisive insight into future market movements.