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Crypto Futures Trading For Beginners: Here’s a 5-Step Plan to Get Started!

2021-09-05

Key Takeaways:

  • Crypto futures allow investors to speculate on the future value of a cryptocurrency. For instance, participants can either go long, wagering on a price advance, or go short if anticipate a drop.  

  • 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. Crypto futures can protect a portfolio and serve as a hedge when investments are trending in the wrong direction.

s cryptocurrencies like Bitcoin and Ethereum grow more prevalent in mainstream media, newcomers find their way to exchanges. While many people are simply spot trading (directly buying or trading an asset) cryptocurrencies, some folks are interested in further capitalizing on market movements.

At the time of writing, Bitcoin has resumed its bull course following a two-month downturn. With cryptocurrencies back in full swing, traders may want to expand the opportunity and maximize the moment’s potential. One of the many ways that anyone can benefit beyond what a simple spot trade offers is through a Bitcoin futures trade.

What is crypto futures trading?

Crypto futures trading is unique from spot trading in many ways. Firstly, crypto futures trades don’t require you to directly purchase or sell or hold any crypto asset(s) to participate. Instead, traders look to buy or sell a futures contract representing a cryptocurrency’s value at a specific date in the future.

Crypto futures allow investors to speculate on the future value of a cryptocurrency. For instance, participants can either go long, wagering on a price advance, or go short if anticipate a drop.  

One of the critical benefits of crypto futures is the use of leverage. Leverage allows for better capital efficiency as traders do not have to lock up entire amounts of capital. As the use of leverage increases both potential returns and risks, users must always exercise caution. Therefore, traders should use a leverage amount that suits them. For example, if you're conservative or new to cryptocurrency trading, a 5x or 2x leverage would be appropriate.

Leverage offers the chance to use futures trades as a defensive hedge for portfolios. If an asset were to perform poorly, or opposite what is speculated, a futures trade hedged against this outcome would 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 (or several smaller contracts). They 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. In addition, the ability to short or long an asset offers more fluidity to investors, as well as the freedom to speculate what the near-term outcomes will be.

5 Steps to Get Started The Right Way

Trading crypto 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 character traits, lifestyle, risk tolerance, and long-term objectives. To find the optimal fit for yourself, follow these points:

  • Identify your 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 your trading day to missing fewer trades and becoming more conscious of your trading habits, which helps you make highly targeted development and treat trading seriously.

3. Proper risk management

To start, traders should consider risk management. Risk management begins by simply setting bounds for what you deem is acceptable or unacceptable to lose in a trade. When futures trading, each dollar should be treated as if it is worth 100x its actual value. Thus, if your account is worth $1,000, you should be highly averse to losing more than $10. Having a long-term perspective like this requires the trader to approach each trade with a clear strategy. As such, winning in small doses over time is a key to building a proper account. This risk management strategy maintains values that protect your funds long-term, allows for realistic expectations, and protect your emotions. 

4. Trading responsibly

Emotional trading, gambling, and compulsive trading are all irrational behaviors that can lead to the demise of a trading career. Ways to mitigate these behaviors include minimizing leverage use and trade capacity, setting realistic goals for success, and never trading with money that you need to survive (unless you can trade professionally and with stability). Losses can stack up quickly and can damage a psyche just as much as a bank account. Letting losses go, and avoiding “lucky runs'' are responsible approaches to futures trading. 

5. Continuous education

Something new about Bitcoin, or cryptocurrencies, is released, talked about, and even developed every day. This industry is constantly evolving, which is what makes it so exciting. Keeping up with the industry is vital because it determines quite a lot about what is going on in the market. Continuous education regarding trading cryptocurrencies 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. Newbies can start at entry-level information and work their way up to more experienced and nuanced material as they gain trading experience.

Binance also offers excellent material on this YouTube channel by Binance Academy, and traders are always welcomed to register for an account at Binance.com.

Read the following Blog Posts and FAQ items for more information: