Cryptocurrency has become a common asset to trade. Many traders manage to gain big profits when doing their research and using useful tools. There are many ways of trading cryptocurrency, and one such option is crypto futures trading. It’s an exciting solution that can help traders get substantial rewards. This article focuses on explaining the basics of crypto futures trading and ways to get into the process.
Understanding Cryptocurrency Features Trading
Crypto future trading entails purchasing and selling futures contracts on the market depending on the value of an underlying virtual currency. Futures contracts are agreements to acquire or sell an asset at a pre-determined price on a specific date in the future (hence the name). In crypto futures trading, the asset is a cryptocurrency. It could be Bitcoin, Ethereum, Solana, Cardano, etc. The currency list depends on the exchange a user chooses.
Traders can take long positions, which means they expect the cryptocurrency’s value to rise, or short positions, which means they expect the value to fall. Futures trading occurs on centralized or decentralized exchanges. The first option is controlled by a company or business, the second one is a decentralized marketplace that connects traders directly.
Crypto futures trading is risky due to the volatility of cryptocurrency prices. On the other hand, this type of trading provides the possibility of significant gains if traders make correct forecasts about the future value of a chosen cryptocurrency.
Benefits Of Crypto Features Trading
Despite crypto’s volatility and rapid price swings as a reaction to news or regulations, crypto futures trading has many advantages. However, investors should always keep an eye on the news and changes to ensure they invest in crypto assets that can increase in value. Overall, crypto futures trading has the following advantages:
- Hedging opportunities. Futures trading enables traders to hedge their crypto positions, so protecting themselves from any losses. For instance, a trader has a substantial amount of Doge and is worried it may drop in price. Thus, the trader chooses to sell Doge futures contracts to offset potential losses if the value of Doge decreases.
- Futures trading can help traders diversify their portfolios by giving them exposure to multiple cryptocurrencies and markets.
- Futures trading allows traders to use leverage, which allows them to hold a huge position with a small amount of coin. For example, the user trades with an x10 leverage. This means that instead of trading $100, the user trades $1,000 (in chosen crypto). Even though it’s possible to raise gains, this trading type is also increasing the danger of losses.
- Increased liquidity. Futures trading can boost the liquidity of the underlying cryptocurrency by giving traders more opportunities to buy and sell it. This can result in more stable prices and less impact from huge buy or sell orders.
- Price discovery. Futures trading can assist in determining the market price of the chosen virtual currency. The price of futures contracts is decided by the asset’s supply and demand, which might provide insight into the market’s predictions for the cryptocurrency’s future price.
Any trading type of investment is risky, but it’s especially dangerous to trade cryptocurrency. It doesn’t mean you shouldn’t try, but ensure you understand the risks and do your research.
What Do You Need For Crypto Features Trading?
It’s clear that crypto futures trading provides many benefits, such as potentially great gains, especially when trading with leverage. But what does one need to get started? Here are a few factors to consider:
- Market knowledge. Traders must learn about the cryptocurrency markets and the factors that can influence the price of futures contracts. Otherwise, they are going in blind, which leads to huge losses. If you choose to trade crypto futures contracts, you must keep up with all current market news and events. Moreover, you should learn about technical analysis and chart patterns to use these tools to your advantage and spot trends.
- Trading or exchange platform. Traders require a reputable and secure trading or exchange platform to access futures markets and conduct trades. Many exchanges provide their own trading platforms. However, traders can also access various exchanges using third-party platforms. You can consider WhiteBIT, Coinbase, Binance, and other popular and trustworthy exchanges.
- A trading account. Depending on the exchange, the procedure of opening an account may differ, but it usually requires giving personal information and completing a verification process. The verification process is part of KYC guidelines, so it’s a safety precaution.
- Risk management strategy. Traders should implement a risk management strategy to assist them in managing their positions and minimizing potential losses. Setting stop-loss orders to automatically close down positions if the market goes against what they deem acceptable. Moreover, such orders help close orders at the best prices to maximize gains.
You can use the crypto wallet offered by an exchange to store coins, but it’s best to invest in a cold wallet if you plan to store some amount of crypto without using it to trade. Thus, you keep your funds safe from hackers or scammers.
How To Get Started?
Now that you better understand what you need to start trading futures contracts in crypto, let’s see how to get started. Once you choose a reputable exchange or trading platform and create an account, here’s what you should do:
- Learn the basics of crypto futures trading. Learn the basics of futures trading in crypto and learn how to read price charts. The most critical aspect is learning about risk management.
- Develop a trading strategy that suits your goals and includes risk management. The strategy should combine fundamental analysis (to find assets to invest in), technical analysis (to spot trends), and risk management tactics (to maximize profits and cut losses). Moreover, the strategy should include your risk tolerance so you won’t engage in emotional trading in panic.
- Use a demo account to practice. Most exchanges provide demo accounts where you can practice trading with virtual funds. This feature is excellent for practicing your trading strategy and acquiring a feel for the platform before putting actual money at risk.
- Begin trading. When you are confident in your trading approach, you can begin trading with real money. Always control your risk and only trade with funds you can afford to lose.
- Keep an eye on your trades. Once you get into trading, you can’t allow yourself to let things flow naturally. Ensure you check the news, monitor your progress, and adjust your strategy if necessary. Note: take profits and cut losses to guarantee long-term profitability.
The best thing about modern trading is that beginner can find guides and tutorials to learn how to get started. Exchanges also provide all the tools required for successful trading; investors simply have to learn how to use them.