Trading crypto assets implies many different strategies and financial instruments. Experienced traders use such complex trading tools as margin and trading crypto futures. Let’s talk about this advanced trading method in this article.
Futures trading is not a new word for financial markets. It implies forecasting the future value of a commodity and betting on it. The same way it works with crypto assets, but the difference is that you do not necessarily buy assets, but you buy a contract.
Cryptocurrency futures contracts are agreements between traders who claim the future value of a crypto asset. The agreement indicates the day when the parties need to fulfill their obligations by the agreement (that is, to purchase or sell assets).
How to Trade Crypto Futures?
You may use one of these platforms for cryptocurrency futures trading:
- Binance Futures
These platforms provide the best conditions for futures trading suitable both for beginner and advanced users. When a user enters a futures derivative agreement, one does not own crypto coins in fact but receives access to them.
Suppose you open a futures position in BTC worth 40,000 USD. You open a short position. Your friend opens a long position at the same time. You wait until the contract date expires, and when the day comes, you check the BTC rate. Suppose it grew to $45,000. Since you opened a short position and your friend – a long one, it means your friend will owe you the difference in the BTC rate ( $5000). So you receive $5000.
Some crypto exchanges offer perpetual futures agreements, meaning there is no date when the parties must fulfill their obligations. In this case, asset rates are kept closer to the spot market prices and the funding is supported by exchange financing mechanisms. In perpetual deals, traders pay or get paid depending on their position. If the asset value shows a positive trend, a trader that has opened a long position must pay compensation to a trader who has opened a short position in the futures agreements.
You can practice this option on the WhiteBIT crypto platform.
How to Invest in Crypto Futures?
Before investing in crypto futures, you should select a trading method that suits your style. There are several popular strategies, including range trading, long and short, pullback, and spread.
One of the most straightforward and commonly used methods is the long and short strategy. A trader waits for the price to increase and sells their coins to receive income when they take a long position. Conversely, a trader takes a short position when they believe the price will fall. They sell assets and then repurchase them at a lower value.
Another strategy is the pullback method, which involves finding support and resistance levels on crypto price charts. As crypto assets constantly move up and down, they reach these levels. The resistance line represents the mark that the asset can hardly break, while the support line is the level that the asset hardly crosses. If the value rises and crosses the resistance level and then retests the previous resistance mark while moving in the opposite direction, it indicates a “long” position opportunity for a trader.