Ever since the world of cryptocurrencies recorded a sudden boom, the industry has continued to witness series of lucrative trading strategies, availing first-time and existing investors with numerous alternatives. As of today, some of the existing trading strategies include day trading, spot trading, future trading, scalping, and a host of others.
However, investors are always advised to only subscribe to the strategies best known to them to avoid running into losses. This is very important as all the incurred trading strategies possess inherent and unique approaches and procedures necessary for concerned investors to imbibe. Without further ado, this article looks to comprehensively enlighten potential and existing investors with the rudiments of future/leverage trading in the crypto space.
What is Future trading?
As programmed, Futures manifested as a type of derivative trading product. The trading strategy works by paving way for two investors to agree to either sell or buy a given asset at a determined price in the future. It is no longer news that the crypto industry is rocked by volatility and engaging in future trading helps traders to be proactive by purchasing or selling a given cryptocurrency derivative asset at a set price in the future.
This thus helps investors to speculate about the possible value of assets in the distant future and proactively activate future trading to optimize their proceeds. However, crypto futures trading does not mandate participants to hold any asset to become eligible. Here, the participants in the trading buy or sell derivatives contracts. This thus depicts the value of given crypto at a specific date in the future. Without equivocation, the trading has continued to grow in popularity and adoption since years ago. Now, scores of Crypto platforms avails their users with future trading services. As of today, some of the platforms includes FTX, CME, Bybit, Kraken, BitMEX and a host of others.
Leveraging technique in Futures
As designed, future trading strategy allows for leverage, a technique which paves way for the efficiency of traders’ capital. In simple terms, leverage exists as a technique to enable traders borrow more capital to increase their trading capacity. Although, the leverage rates open for grab hugely depend on the policy of the exchange used. This thus prevents the locking of the entire capital of involved traders. However, traders need to process the trading mechanism with vigilance to escape the risks associated with the process. For instance, it is recommended that new traders consider a 5x leverage, particularly when using the derivatives as a defensive hedge. With this, traders get loss compensation when the opposite of their respective price speculations materialize.
More so, every future trading posseses an expiration date. Traders must ensure the settlement of the futures contract on or before the expiration date. This simply means the seller needs to sell, just as the buyer needs to buy at an already determined tag. As of today, participants settles a future contract via two strategies which include cash and physical settlements. In the physical settlement, the buyer tends to purchase and also take crypto in return. Cash settlement on the other hand deals with the transfer of cash between the seller and buyer.
Participating in the trading trend
Although new traders tend to struggle with future contracts, however, the trading is not rocket science. The trend requires the understanding of the volatility of the crypto market and how it responds to series of factors. For new traders, you need to determine the level of your risk tolerance, trade size, and financial goals before subscribing to future trading. To ensure the implementation of the identified variables, new traders need to come up with a workable trading master plan. This drafted plan guides and reminds the trader as regards the entry and exit positions, stop-loss placement, and others. More so, traders, whether new or existing need not to gamble, but rather trade with a sense of responsibility.
As a future trader, minimize leverage and avoid trading with funds that you are grossly afraid to lose. However, don’t panic but expose yourself to series or enlightenment about the trading. Recall that the Crypto space and its projects are always evolving and thus mandates one to update existing trading skills. With this, one tends to succeed quickly and with ease on the task.