Crypto Futures Trading For Beginners: Here’s a 5-Step Plan to Get Started!
Key Takeaways:
Crypto derivatives allow traders to speculate on the future value of a digital asset.
This financial product offers more opportunities and potential to grow one’s portfolio through the use of leverage.
Futures trading also can help protect one’s portfolio and serve as a hedge when investments are trending in the wrong direction.
As cryptocurrencies like Bitcoin and Ethereum grow more prevalent in mainstream media, newcomers find their way to exchanges. Spot tading welcomes those who are risk-averse to buy digital assets and hold them for an extended period while futures trading attracts traders who are interested in further capitalizing on market movements.
With cryptocurrencies going through high levels of volatility, traders may want to optimize their profits and Bitcoin Futures can offer them that opportunity.
What Is Crypto Futures Trading?
Crypto futures trading differs from spot trading in many ways as it doesn’t require participants to hold any assets to participate. Instead, traders look to buy or sell derivatives contracts, which represent the value of a given crypto at a specific date in the future.
Essentially, futures trading allows investors to speculate on the future value of a cryptocurrency. Traders can go long to wage on a price advance, or go short to anticipate a price drop.
One of the most important benefits of futures trading is the use of leverage.
Leverage allows for better capital efficiency as traders do not have to lock up entire amounts of capital. It increases both potential returns and risks, which is why traders must always exercise caution.
A leverage of 2x or 5x would be considered appropiate for those who are new to futures trading. Especially, for traders who want to use crypto derivatives as a defensive hedge for their portfolios. If an asset were to perform poorly, or opposite what is speculated, a futures trade hedged against this outcome with a certain amount of leverage can compensate for the loss.
Why Invest in Cryptocurrency Futures?
Investing in cryptocurrency futures offers more opportunities and potential to grow a portfolio. Simply put, the leverage available in futures trades can easily enhance a portfolio multi-fold within a single trade.
Another reason to participate in futures contracts is hedging, as mentioned earlier. Protecting a portfolio can be challenging, especially with cryptocurrencies. A strong line of defense for any portfolio is a futures contract, which can serve as a hedge when investments are trending in the wrong direction.
Unlike spot trades that benefit the investor when the price is trending upwards, futures traders can profit even when the price is falling by shorting the market. It gives investors more fluidity and the freedom to speculate on what the near-term price action of an asset will be.
5 Steps to Start Trading Futures the Right Way
Futures trading is a challenging endeavor for just about everyone. It takes plenty of time to understand how the market changes and adjusts over time, how external factors affect the market, the incentives people undertake to participate, and much more.
With such an enormous amount of information to digest and little experience or knowledge to navigate with, it’s no wonder lots of first-time traders struggle to get their bearings and eventually bottom out. This is why it is crucial to follow a strategic approach to every trade.
1. Find a Trading Methodology
Finding a trading methodology is more than just replicating a highly profitable strategy that was found on YouTube or social media. A trading methodology that works has to be personalized to fit your psychological traits, lifestyle, risk tolerance, and long-term objectives.
To find the optimal fit for yourself, follow these points:
Identify your trader personality
Determine your risk tolerance and long-term financial goals
Define trade parameters that could match your personality
Evaluate the performance of each parameter and how you deal with them
Make adjustments if you experience problems
2. Develop a Trading Plan
A trading plan can help you to manage risk better and help improve trading consistency. When developing a trading plan, you must include a detailed layout of how you would enter and exit positions, including entry and exit indicators, position-sizing, and stop-loss placements.
The advantages of having a trading strategy are numerous, ranging from lowering stress throughout the trading day to missing fewer trades. Traders must become more conscious about their trading habits to make highly targeted developments and treat trading seriously.
3. Proper Risk Management
The most important thing about trading is risk management. It begins by simply setting bounds for what you deem is acceptable or unacceptable to lose in a trade.
When trading futures, each dollar should be treated as if it is worth 100x its actual value. If your account is worth $1,000, you should be highly averse to losing more than $10.
Having a long-term perspective requires traders to approach each trade with a clear strategy. Winning in small doses over time is vital to building a proper account.
Risk management strategies can help protect capital, enable realistic expectations, and avoid letting emotions run your trades.
4. Trade Responsibly
Emotional and compulsive trading are considered forms of gambling behavior that can demise a trading career. There are multiple ways to mitigate these psychological traits, such as minimizing leverage, decreasing the number of traders performed on a given period, setting conservative goals and targets, and never trading with money you cannot afford to lose.
Losses can stack up quickly and damage your capital, which is why letting losses go and avoiding “lucky runs'' are responsible approaches to futures trading.
5. Continuous Education
Something about Bitcoin, or cryptocurrencies in general, is that it represents a new asset class so people are talking about it and working on making improvements every day. This industry is constantly evolving, which is what makes it so exciting.
Keeping up with the blockchain industry and constantly looking for ways to improve your trading skils is necessary to remain on the edge of success. Education will always help create more decisive insights into the subsequent market movements, allowing you to plan for what’s to come.
Where Do I Start Learning More About Crypto?
A great place to begin learning about cryptocurrencies and trading these assets is right here at Binance Futures!
There are dozens of helpful articles to be found. You can start at entry-level information and work your way up to more experienced and nuanced material at your own pace.
Binance Futures also offers excellent material on its YouTube channel and traders are always welcomed to register for an account at Binance.com.
Read the following Blog Posts and FAQ items for more information about Binance Futures:
(Blog) Crypto Futures Trading: Things You Need to Know Before You Begin.
(Blog) Crypto Futures Risk and Money Management: 5 Things You Can Do to Better Manage Trading Risk.
And many more Binance Futures FAQ topics....
Disclaimer: Crypto assets are volatile products with a high risk of losing money quickly. Prices can fluctuate significantly on any given day. Due to these price fluctuations, your holdings may significantly increase or decrease in value at any given moment, which can result in a loss of all the capital you have invested in a transaction.
Therefore, you should not trade or invest money you cannot afford to lose. It is crucial that you fully understand the risks involved before deciding to trade with us in light of your financial resources, level of experience, and risk appetite. If required, you should seek advice from an independent financial advisor. The actual returns and losses experienced by you will vary depending on many factors, including, but not limited to, market behavior, market movement, and your trade size. Past performance is not a guide to future performance. The value of your investments may go up or down. Learn more here.
Disclaimer 2: Brickhouse Trading Ltd offers Binance Futures and Options products in South Africa as a Juristic Representative of FiveWest OTC Desk (Pty) Limited (Authorised FSP 51619), an authorised financial services provider in South Africa. Brickhouse Trading Ltd is a member of the Binance group of companies.