Cryptocurrency futures are a great way to speculate on the price of bitcoin and other digital currencies. Futures contracts allow you to buy or sell an asset at a predetermined price in the future. This can be a great way to protect yourself from price fluctuations or to make a profit if you think the price of a cryptocurrency will go up. Here is how to trade cryptocurrency futures and some tips for success.
One of the main benefits of trading crypto futures is that it allows you to speculate on digital currencies' prices without owning any of the underlying currency. This means you can take a position without worrying about storing or securing your coins. Furthermore, because futures contracts are traded on exchanges, you’ll have access to leverage, which can magnify your profits (or losses).
However, there are also some risks associated with trading cryptocurrency futures. For one, because these contracts are based on an underlying asset that can be volatile, the prices of futures can fluctuate rapidly. This volatility can be amplified by leverage, so it’s important to use stop-loss orders when trading cryptocurrency futures. Additionally, because cryptocurrency futures are still relatively new, they may not be as liquid as other types of investments, meaning it may be difficult to exit your position when you want to.
If you’re interested in trading cryptocurrency futures, there are a few things you need to do first:
- You’ll need to find a reputable exchange that offers these types of contracts.
- You’ll need to open an account and fund it with cash or cryptocurrency.
- Once you have an account, you can start researching which contracts you want to trade and placing orders.
Here are some helpful tips for getting started with trading cryptocurrency futures:
1. Do Your Research
Cryptocurrency futures trading is a bit different than spot trading, and it's important to do your research before getting started. With cryptocurrency futures, you're trading a contract that allows you to buy or sell an asset at a set price at a future date. This type of contract is called a derivative, which can be used to speculate on the price of an underlying asset. For example, if you believe the price of Bitcoin will rise in the future, you could buy a Bitcoin futures contract. If the price of Bitcoin does indeed increase, you will make a profit on your trade. However, if the price falls, you will suffer a loss.
2. Choose an Exchange
Numerous crypto exchanges offer futures trading, so choosing one that best meets your needs is important. Consider factors like the fees charged, the range of assets available, and whether the exchange offers margin trading. Once you've selected an exchange, take some time to familiarize yourself with the platform before placing any trades.
3. Set Up Your Account
Most exchanges require you to set up an account before you can begin trading. This process usually involves verifying your identity and providing some personal information. Once your account is set up, you'll need to deposit some funds to place trades.
4. Place Your Trade
Once you're ready to trade, select the contract you want to trade and enter your order. You can choose to buy or sell the contract, and most exchanges will allow you to place limited orders to control your risk. Cryptocurrency futures contracts are usually traded in lots, representing a certain amount of the underlying asset.
5. Monitor Your Position
After placing your trade, it's important to monitor your position and ensure that it's performing as expected. You can do this by keeping track of the underlying asset's price and comparing it to the price of your contract. If everything is going according to plan, you can let your position ride until it expires. However, if things aren't going as expected, you may need to intervene and close out your position early to avoid losses.
6. Use Stop-Loss Orders
Because cryptocurrency futures can be volatile, it's important to use stop-loss orders when trading them. A stop-loss is an order which closes your position automatically once it hits a certain price. This is useful if the price starts going against you and you don’t have time to intervene manually. You can set one up by clicking on the “Stop Loss” tab in the order form. You can click on the “Close Position” button if you want to close your position manually.
7. Have an Exit Plan
Before you enter any trade, it's important to have an exit plan. This means knowing how to close out your position and take your profits (or losses). With cryptocurrency futures, you can close out your position by selling your contract before it expires. However, you may also need a stop-loss order if the market moves against you.
8. Be Patient
Cryptocurrency futures trading can be a bit of a waiting game, unlike spot trading, which allows you to buy and sell assets immediately; with futures, you usually have to wait until the contract expires before taking your profits (or losses). This means that you need to be patient and have a good understanding of the market before entering into any trades.
9. Stay Up-To-Date On the Latest News
Finally, staying up to date on the latest news and developments in the crypto space is important. This will help you make better trading decisions and avoid getting caught off guard by sudden market movements. You can follow industry news sites, forums, and social media accounts.
Cryptocurrency futures can be a great way to speculate on digital currencies without actually owning any of the underlying coins. However, there are some risks associated with trading these types of contracts. Research and use stop-loss orders to protect yourself from large losses. If you’re patient and disciplined, trading crypto futures can be profitable.
This article was written in cooperation with ByBit