If you are a crypto novice, you will come across several terms that may seem confusing, including crypto futures trading. This is a term commonly used by investors and exchanges, especially when predicting the future of a crypto asset.
Crypto futures trading is a contract between individuals speculating on underlying crypto assets’ future price or market situation. The crypto contract is similar to the traditional futures contract on stocks or commodities.
If you understand the concept, you can earn huge profits from crypto futures trading. It will also help you to implement the right trading strategies.
What is Crypto Futures Trading?
Crypto futures trading involves buyers and sellers, where each party decides to buy or sell a cryptocurrency at a particular price on a set date. This allows individuals to participate in crypto trading without necessarily owning an asset. However, we encourage you to conduct adequate research, as your expertise and crypto knowledge would largely influence your investment result.
You can read this article on how to conduct adequate research on cryptocurrency.
It’s expedient to emphasize that crypto futures trading can have an expiry date or not. A contract with no expiry date is known as perpetual futures trading. This means that traders are not required to spend money on contract renewal, as perpetual futures trading allows them to maintain their positions for a long time.
Crypto Futures Trading Vs. Spot Trading
The futures contract is similar to the spot trading principle. However, both exhibit some key differences, which are highlighted in the table below.
| Futures Trading | Spot Trading | |
| Leverage | In futures trading, traders maximize profits and losses through leverage. | Spot trading involves no leverage, as traders trade with their capital. |
| Hedging | Some traders can take long positions to hedge price increments, while others take short positions to hedge positions against price fall. | Investors need to sell their holdings to protect themselves against price fluctuations. This approach is different from the direct hedging mechanism used in futures trading. |
| Ownership | Futures trading ownership is based on futures contracts, not cryptocurrency assets. | In spot trading, you can own a crypto asset and send the token to your wallet when you want to. |
| Timing of Transaction | Parties selling and buying cryptocurrency in futures trading usually fix a date to perform the transaction. | In spot trading, the parties involved perform the transaction immediately, as the buyer gains ownership of the asset. |
| Expiry Dates | Futures trading may expire, except for the perpetual model. Once your contract expires, you must renew to retain your position. | Spot trading has no expiry date, as you can hold assets for as long as possible. |
| Risk Involved | The risk in future trading is relatively low, especially for leverage traders. | In spot trading, the risk is proportional to the trader’s investment amount. |
Getting Started with Crypto Futures Trading
Even though crypto futures trading increases traders’ profit potential, it entails certain risks. Thus, every new trader is encouraged to consider the tips discussed below before starting.
Consider Risk Management
Your ability to implement risk management strategies will minimize your trading loss and increase your reward. You must also consider the maximum drawdowns you are willing to bear. For instance, when you trade cryptocurrencies with smaller market capitalizations, you get more profits and higher risks. We also recommend traders not to risk more than 1-2% of their wallet balance at once.
What are wallets? Find out your answer in this published article.
Learn How to Interpret Technical Charts
Technical charts help traders to identify the best buying and selling time while keeping emotions in check. Some words you will come across during technical analysis are resistance, candlesticks, relative strength indices, and moving averages. However, we advise you to refrain from trading digital assets purely based on technical analysis, especially when you are a non-expert.
Review Various Crypto Futures Trading Platforms
It’s essential to conduct thorough research on available trading platforms before signing up. Some platforms may also provide helpful information on their websites. A perfect example is the Solus Finance product guide. Interestingly, this trading platform has received great recommendations from experts within the crypto industry.
Solus is a crypto derivatives trading platform enabling the transaction of users from Web2 to Web3. Started by seasoned techies and successful founders, the core team came with several years of experience collectively.
Nischal Shetty, Co-founder and President at Shardeum
To sign up on the Solus Finance platform, follow this process:
- Visit app.joinsolus.xyz
- You can either sign up with your email address or an existing ERC-20 wallet.
- If you sign up with an email, Solus Finance will create an ERC-20 wallet for you.
- You can always view your wallet address in your trading profile.
- Congratulations! You are ready to start trading.
Join a Crypto Futures Community
Becoming a decision-maker within crypto communities may take some time, but consistency will eventually help you adjust to the environment. Communities will help you to gather timely information and helpful market trends. This is because most information is passed across within communities before getting to the general public. Some communities to follow include subreddits, Telegram groups, Exchange communities, and Discord groups.
The tweet below shows the Solus Finance trading platform informing the public of its community.
🥇 APP FIRST 🥇
📱 Signup to https://t.co/usc4t7BCcO and join the community, all through our app!
🫱🏼🫲🏻 Communities need products and products need communities. We bringing both when you join Solus.
👀 Also give some ❤️ to our slick new UI pic.twitter.com/rqsid0QotV
— Solus (@SolusFinance) June 7, 2023Benefits of Crypto Futures Trading
One of the main benefits of crypto futures trading is the opportunity to learn more about cryptocurrency in a less volatile environment.
- Leverage: Leverage is owning a larger crypto position with a small investment capital. This is ideal for investors with a small amount of capital who want to participate in the market movement fully.
- Hedging: Hedging is a strategy long-term investors employ to minimize their downside risks. They hold opposite positions to secure potential future profits, especially in a highly volatile market.
- Flexibility: Unlike other types of trading, like the traditional stock market, crypto futures trading can happen anytime. Thus, traders are not restricted by time, which is suitable for individuals whose trading is influenced by recent news and price movements.
- Diverse trading strategies: Crypto futures trading allows different traders to employ several strategies, including scalping, arbitrage, and swing trading. Traders should implement strategies that they are most familiar with.
Risks and Challenges in Crypto Futures Trading
Among other things, investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment.
U.S. Securities and Exchange Commission.
The U.S. Securities and Exchange Commission highlighted the United States Bitcoin futures trading regulations in its latest bulletin. It was also emphasized that crypto futures trading has heightened risks due to the lack of regulation and potential for manipulation in the underlying Bitcoin market.
Besides the U.S. Securities and Exchange Commission, reliable and trustworthy trading platforms always inform their traders about the risks of futures trading. Here is a vital quote from Solus Finance, a risk disclosure statement, which further proves that transparent platforms like Solus Finance can be relied upon.
Derivatives products carry a high degree of risk as they often involve gearing or leverage, so that a relatively small movement in the price of the underlying digital asset results in a much larger movement, favorable or unfavorable, in the price of the product. If the direction of the trade is opposite to the fluctuation of the market, it will cause a large loss. Depending on the extent of the loss, investors need to add margins or reduce positions. If otherwise, investors positions may be forced to liquidate, and investors must bear all the losses caused thereby.
Other possible challenges you may face during crypto futures trading include:
- Margin calls: Margin calls may surface if the market movement is unfavorable towards a trader’s position. Thus, traders must deposit extra funds to prevent possible losses.
- Liquidity risk: When a crypto asset’s liquidity is low, it may be difficult for investors to enter or leave their positions at preferred prices.
- Ownership risk: Investors can’t lay claim to a cryptocurrency asset but simply a contract as a representation.
Conclusion
You may have often heard how crypto futures trading boosts investors’ portfolios x10. However, futures trading isn’t as simple as you may have thought. Thus, you need to understand how it works to avoid huge risks. We encourage you to be a responsible trader by implementing essential trading strategies.
