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September 21, 2022

Crypto Futures

Futures market trading

Cryptocurrency futures are contracts between two investors that bet on a cryptocurrency’s future price. They allow investors to gain exposure to select cryptocurrencies without purchasing them.

A futures contract trading is a form of crypto derivatives trading. It’s similar to futures contracts for commodities or stocks because they allow you to bet on the price trajectory of an underlying asset.

Major types:

  • USD(S) margin perpetual contract – here, stablecoins are used as collateral for the perpetual contract. A perpetual contract is a specific type of futures contract that does not have an expiration date
  • COIN margin perpetual contract– crypto coins are used as collateral.

Also, we have Options & Battle Trading but that would be for another topic.

What is leverage: This is the ability to trade with more capital than you have: for example 5x, 10x, 20x, or even 100x your initial capital.

Margin requirement: – Your margin is the collateral you need to open a particular futures perpetual contract trade. It depends on your available capital and leverage. For instance, if you’re using a 10x leverage, you will need to have at least one tenth of the capital you want to borrow as your margin/collateral.

Speculation: This is more like investors betting on the future price of an asset. Most times, these future events are outside the total control of the investors thus they are merely speculating. They can decide to go Long(open a buy position) or go Short(open a sell position).

It’s a highly risky endeavor as investors can lose all their money.

Why people trade crypto futures:

  • Some use it to prevent/protect their downside
  • Some use it to avoid bringing a lot of their crypto/capital to the exchange
  • Some use it for pure gambling or as a money printing machine
  • Basically to increase both potential returns and risks, which is why traders must always exercise caution.

Advantages of Futures Trading

  1. Simplicity: Crypto futures simplify the process of investing in Bitcoin/other cryptos. The investor does not need to create a crypto wallet or put money into custody solutions for storage and security while trading because there is no physical crypto settlement.
  2. It offers more opportunities and potential to grow one’s portfolio through the use of leverage. It does increase potential returns(same with risk)
  3. Does not need to Know Your Customer(KYC)
  4. Low trading fees
  5. Possibility of short selling
  6. Largest trading volume

Disadvantages of Futures Trading

  1. It’s a highly speculative investment. You can lose all your money within a few hours or days
  2. Most Exchanges Are Unregulated. You have to be careful of insider trading and unsafe practices.
  3. A lot of manipulation: media houses, and crypto institutions are all manipulating the market the same way some exchanges do.
  4. Past performance does not guarantee future results. You can win a lot in the past 3 months and lose it all in the next 3 months. It’s called back to square zero.
  5. Game theory and addiction: You can get pretty much addicted to it while losing your health and wealth.

How to approach futures trading in crypto

  1. If possible use crypto bot or websites that make it easy to automate y our futures trading – especially for non-coders.
  2. Capital allocation: allocate less than 30% of your crypto wealth to crypto futures or leverage trading. Once you do the allocation, consider it gone cause you’re now in the dangerous zone/ risky market
  3. Have a trading methodology, strategy, and plan that suits you
  4. Have a good knowledge of Technical Analysis(TA)- being an intermediate is fine
  5. Employ proper risk management(use proper position sizing and stop loss always)
  6. Understand trade management & market psychology
  7. Know how to handle winning and losing streaks. The best method that I know of is to take breaks.
  8. Trade Responsibly: Emotional and compulsive trading are considered forms of gambling that can send you back to the village
  9. Continuous education: crypto never sleeps. Daily improvement on blogs, Twitter Space, Binance academy etc. Binance futures homepage is also a good source.

That’s all I have for your about crypto futures trading today.

As a general rule, all newbies should avoid futures trading except if they really know what they’re doing.

I strongly suggest everyone including you reading this post stick to the crypto spot market. Crypto is too volatile to even add leverage on top of it.

Again, except you are an expert and you really, really know what you’re doing; stay away from crypto futures or leverage trading.

Thank you.

About the author 

Kehinde Lawal

CEO & Founder @9jaCashFlow | I'm a digital entrepreneur, farmer, and investor. Like Thomas Edison, I'm failing my way to success. Let us connect! | +234 810 185 0909

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