Futures derivatives trading is widely used in traditional markets, and the crypto sector is not an exception. However, when it comes to the crypto market, futures is a much more complex instrument to use because the market is incredibly volatile, and it is much harder to predict its movement.
The idea of trading crypto futures is speculation on the future value of assets and risk management. There are two main scenarios:
- Hedge risks. If you have some crypto assets and do not want to lose them because you think the market will go down soon, you may sell coins and then repurchase them at a lower rate.
- Speculation. If you want to make money as the market grows, you may agree to sell your crypto coins at a high rate.
In both cases, you need to conclude a futures contract where you should specify the price of the asset and the day when you will fulfill your obligations. If the market moves in the direction you suppose it to move, you succeed.
For better results, traders use leverage. It is funds that you borrow from a crypto exchange. Using those funds, you may enter a much more profitable position than you could do with your amount.
The best cryptocurrencies for futures trading are those with high market cap indicators and liquidity. Those are Bitcoin and Ethereum – the market’s leaders.
Some Tips on Trading Crypto Futures
Here are some recommendations on futures trading:
- find out what is your trading personality;
- determine your objectives;
- identify your risk tolerance;
- find trading parameters that would suit your personality;
- see how you deal with earn of the parameters;
- add adjustments if needed.
Another important recommendation for beginners is to use small leverage in futures trading. Keep in mind – the bigger leverage you take, the higher the risks. So begin with a 2X or 5X leverage and do not move to the higher ratio until you are confident in your skills. To practice different leverage ratios, use demo trading options offered on some crypto exchanges. For example, WhiteBIT. It is a large and safe platform allowing clients to gain experience using demo tokens. In such a way, you can determine your trading personality and risk tolerance, as well as find all the pitfalls in trading crypto futures.