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Crypto Futures Basics: How to Trade Futures with a Small Account

2021-06-20

Key Takeaways:

  1. By setting a realistic profit target, you will be less pressured by the outcome of every trade, and this should help reduce trading stress and have a corresponding positive impact on your long-term results.

  2. Your risk exposure should be proportionate to your account size to avoid risking more than 5% of your capital on each trade.

  3. Conduct a strategic analysis of risk-to-reward and trade fundamentals before entering a position to trade only high-probability setups.

  4. Abstain from withdrawing profits and reinvest them in order to compound your capital to a point where it could fuel your income or even replace it. 

Buying cryptocurrencies in the spot market is fun, but periods of consolidation and low volatility can slow down your growth. This is why traders are flocking to derivatives trading platforms to make the most out of the cryptocurrency market regardless of the size of their accounts.  

Trading crypto futures contracts is becoming more popular and more accessible as the adoption of this new asset class accelerates. With so much interest in these instruments, we want to provide you with some tips that could help your crypto futures trading aspirations launch in the right direction. 

Please note that the following tips are not financial advice but are rather useful philosophies to consider before committing to crypto futures trading. 

1. Set Realistic Expectations

First and foremost, it is crucial to set out conservative goals and expectations. Trading is very difficult for anybody as even legendary Wall Street traders have experienced major losses in their careers.

It is important to have realistic profit targets. Novice traders with a small capital base of $5,000 shouldn’t expect to make $5,000 per month or even cover living expenses. Instead of aiming for 100% returns per month, a more realistic target is to grow a trading account by 1-2% per month and remain consistent.

By setting realistic targets and expectations, you will be less pressured by the outcome of every trade. Such practices will help you reduce trading stress and have a corresponding positive impact on your long-term results. Calculate your profit target using Binance Futures Calculator.

Prolonged success demands a strategy, and being proportionate with funds is a key piece of strategy. Done properly, slowly growing a small account into one that can sustain you, and that you can sustain, is a worthy achievement.

The best place to start with your crypto futures trading endeavor is to evaluate your account size objectively so that you can understand what to expect from each trade.

2. Risk Proportionately to Your Account Size

Each dollar on your trading account should be treated as if it is worth 100x its actual value. Therefore, if you have an account worth $1,000, you should be averse to losing anything more than $10 (or 1% of your account value). Experienced traders, for instance, avoid risking more than 5% of their account value per trade. 

Keeping your losses short is a long-term strategy that demands you implement proper risk management on each trade. The sole purpose of this approach is to protect your funds by cutting off losses early, setting realistic expectations, and protecting your emotions. 

Finances often become associated with self-esteem, optimism, fear, even mental health, and to some extent, physical health. For this reason, it doesn’t matter how large someone else’s account is or how much they trade, win, or lose. Your trades are only important to you, and you should focus on building for yourself rather than competing against other traders.

An approach that values each dollar as a precious piece of a portfolio will lead to conservative emotions and focused strategies that guide entries and exits. With crypto futures trading, investors can trade with fractions of a dollar, making it vital to value the size of your account.

3. Keep an Eye on Your Trading Capital

A seemingly simple tip when starting out is to keep an eye on your trading capital. Since you’re trying to build your wealth, you will need every brick you have so that you can slowly introduce a higher risk per trade. As your funds compound, you’ll be able, at some point, to fuel your income, or maybe replace it (given you’ve stuck to your strategies and values). 

Withdrawing capital from your trading account after a series of profitable trades can help you reduce your risk exposure. Likewise, you may have to deposit additional funds to avoid liquidation when the market moves opposite to your trades. This is why keeping an eye on your trading capital could help you ensure further capital growth. 

Trading must be thought of as a long-term game and should be respected well beyond instant gratification wins.

4. Enter Only High-Probability Trade Setups

A key feature that is coupled to trading at low volumes and trading with appropriate leverage is only entering high-probability trade setups. This can be determined through a strategic analysis of the fundamentals and technicals you rely on, such as following support and resistance levels, trendlines, trading volumes, Wyckoff schematics for shape and timing, and recent market movements, to name a few. 

When the analysis agrees with your inclinations, applying more confidence to a trade is reasonable. The analysis process should help you further rank risk probabilities in the future as you learn how patterns affect market psychology, institutional influences, and much more.

Only apply high risk to incredibly certain scenarios, but even then be weary of your fundamental values. If for some reason the trade goes in the opposite direction and you lose on high leverage will it be worth it? If the answer is yes, then you should go for it.

5. Compound Your Profits

A technique that can help accelerate account growth is compounding your profits. When you have successfully executed a trade based on a high probability setup, then you can feel comfortable about continuing your streak. If you set up a further stop loss that favors the trend you followed in your initial trade, and place a high risk/reward ratio on it, you may be able to further expand your profits. 

This should be a technique only used in absolute certainty, as applying more leverage to even a 2% investment at 10:1 can cost you 20% of your portfolio. Winning it could also land you a nice chunk to be encouraged about as well. Setting yourself up for high wins probabilities can set you up for continuations of that positive momentum too.

Conclusion

Starting up a small crypto futures trading account is a task not unlike launching one with millions of dollars in it. The same values apply, and each bit of fund that you risk should be treated with care. Every investment should be based on high-probability setups, and should never be leveraged enough to take a significant portion out of your trading account.

Trading can become intense as emotions along with other psychological traits can easily become involved. It’s important to remember where you started, learn from your mistakes, and think long-term. Even if you’re trading in order to build a legitimate career in futures trading, it’s healthy to remember that it’s only money, and that’s not everything life has to offer. 

Losing or missing a trade isn’t as important if you learn from your mistakes. Likewise, winning a trade is only important if it helps you move closer toward your goals. 

In either scenario, practice makes perfect, and dedication to learning and appreciation for opportunities will guide you forward when trading.

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