Learn how to trade binance futures – successfully and safely

Key Takeaways:

  • Crypto derivatives allow traders to speculate on the future value of a digital asset.   

  • This financial product offers more opportunities and potential to grow one’s portfolio through the use of leverage.

  • Futures trading also can help protect one’s portfolio and serve as a hedge when investments are trending in the wrong direction.

As cryptocurrencies like Bitcoin and Ethereum grow more prevalent in mainstream media, newcomers find their way to exchanges. Spot tading welcomes those who are risk-averse to buy digital assets and hold them for an extended period while futures trading attracts traders who  are interested in further capitalizing on market movements.

With cryptocurrencies going through high levels of volatility, traders may want to optimize their profits and Bitcoin Futures can offer them that opportunity.

What Is Crypto Futures Trading?

Crypto futures trading differs from spot trading in many ways as it doesn’t require participants to hold any assets to participate. Instead, traders look to buy or sell derivatives contracts, which represent the value of a given crypto at a specific date in the future.

Essentially,  futures trading allows investors to speculate on the future value of a cryptocurrency. Traders can go long to wage on a price advance, or go short to anticipate a price drop.  

One of the most important benefits of futures trading is the use of leverage. 

Leverage allows for better capital efficiency as traders do not have to lock up entire amounts of capital. It increases both potential returns and risks, which is why traders must always exercise caution. 

A leverage of 2x or 5x would be considered appropiate for those who are new to futures trading. Especially, for traders who want to use crypto derivatives as a defensive hedge for their portfolios. If an asset were to perform poorly, or opposite what is speculated, a futures trade hedged against this outcome with a certain amount of leverage can 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, which 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 by shorting the market. It gives investors more fluidity and the freedom to speculate on what the near-term price action of an asset  will be.

5 Steps to Start Trading Futures the Right Way

Futures trading 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 psychological traits, lifestyle, risk tolerance, and long-term objectives. 

To find the optimal fit for yourself, follow these points:

  • Identify your trader 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 the trading day to missing fewer trades. Traders must become more conscious about their trading habits to make highly targeted developments and treat trading seriously.

3. Proper Risk Management

The most important thing about trading is risk management. It begins by simply setting bounds for what you deem is acceptable or unacceptable to lose in a trade. 

When trading futures, each dollar should be treated as if it is worth 100x its actual value. If your account is worth $1,000, you should be highly averse to losing more than $10. 

Having a long-term perspective requires traders to approach each trade with a clear strategy. Winning in small doses over time is vital to building a proper account.

Risk management strategies can help protect capital, enable realistic expectations, and avoid letting emotions run your trades. 

4. Trade Responsibly

Emotional and compulsive trading are considered forms of gambling behavior that can demise a trading career. There are multiple ways to mitigate these psychological traits, such as minimizing leverage, decreasing the number of traders performed on a given period, setting conservative goals and targets, and never trading with money you cannot afford to lose. 

Losses can stack up quickly and damage your capital, which is why letting losses go and avoiding “lucky runs” are responsible approaches to futures trading. 

5. Continuous Education

Something about Bitcoin, or cryptocurrencies in general, is that it represents a new asset class so people are talking about it and working on making improvements every day. This industry is constantly evolving, which is what makes it so exciting. 

Keeping up with the blockchain industry and constantly looking for ways to improve your trading skils 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. You can start at entry-level information and work your way up to more experienced and nuanced material at your own pace.

Binance Futures also offers excellent material on its YouTube channel and traders are always welcomed to register for an account at Binance.com.

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

Disclaimer: Crypto assets are volatile products with a high risk of losing money quickly. Prices can fluctuate significantly on any given day. Due to these price fluctuations, your holdings may significantly increase or decrease in value at any given moment, which can result in a loss of all the capital you have invested in a transaction.

Therefore, you should not trade or invest money you cannot afford to lose. It is crucial that you fully understand the risks involved before deciding to trade with us in light of your financial resources, level of experience, and risk appetite. If required, you should seek advice from an independent financial advisor. The actual returns and losses experienced by you will vary depending on many factors, including, but not limited to, market behavior, market movement, and your trade size. Past performance is not a guide to future performance. The value of your investments may go up or down. Learn more here

Key Takeaways:

  • Futures contracts allows traders to gain exposure to cryptocurrencies without the need to possess the underlying asset.

  • Traders can sell high and buy low to profit from the price difference, which is known as short selling.

  • Leverage draws traders to the futures market, making it extremely capital-efficient. 

Derivative contracts have been in existence for almost a century, but it wasn’t long ago when trading platforms started adding cryptocurrencies to their offerings. Digital assets now take a significant part of the portfolio of the average investor and their volatility makes them an excellent financial product for futures trading.

Other than being one of the most traded crypto derivatives products, futures embody many long-established derivatives. Often, people confuse futures with options but these instruments are quite opposite from each other, offering different benefits.

What Are Crypto Futures?

Futures contracts like USDT-margined futures allow traders to gain exposure to cryptocurrencies without the need to possess the underlying asset. It is a similar concept to stock indices or derivatives contracts involving commodities, where an investor can take risks on an asset’s future value. Therefore, the value of a crypto futures contract derives from the digital asset it represents,  such as Bitcoin or Ethereum. 

When a crypto futures contract expires, the trade is settled in cash rather than the actual digital asset.

The dominant aspect of crypto futures trading is that it can protect investors against adverse market conditions. Traders can sell high and buy low to profit from the price difference, which is known as short selling. Essentially, crypto futures contracts give market participants the opportunity to make profits regardless of the price direction of the underlying asset.

Crypto futures contracts are tradeable 24/7 on derivative trading platforms like Binance Futures. Due to the high volatility associated with derivatives trading, traders must manage risks prudently, and it’s imperative to learn the fundamental basics of crypto futures before investing.

How Do Crypto Futures Work?

While digital assets are met with diverse and unique challenges, from high volatility to negative publicity, some traders use this volatility to their advantage.

The most vital thing to note in crypto futures trading is that you only take risks on the price changes without holding the actual cryptocurrency.

Let’s consider a simplified example! 

John entered a long futures position when BTC was trading at $40,000 while Sarah entered a short position at the same time. Then, prices moved up and John and Sarah decided to settle their positions at $45,000. In this case, Sarah, who is holding a losing trade, will have to pay the exchange the deficit loss of $5,000 ($45,000-$40,000 = $5,000). John, on the other hand, will receive a profit of $5,000 from the exchange.

Basic Concepts of Crypto Futures Trading

Traders tend to familiarize themselves with the essential concepts that are involved in crypto derivatives to have a better understanding of the benefits these financial products have to offer. 

Here are a few terminologies that can get you closer to becoming a successful crypto derivatives trader. 

1. Leverage

The lure of leverage draws traders to the futures market, making it extremely capital-efficient. 

For example, to buy 1 BTC on the spot market, you’d need thousands of dollars. But with a futures contract, you can open a long BTC position at a fraction of the cost thanks to leverage. 

In contrast, leverage is not available in spot trading so if you only have 100 BUSD in your spot wallet,  you can only afford 100 BUSD worth of Bitcoin.

2. Margin Requirements

An initial margin is needed to enter into a futures position. It is the percentage of a futures position’s notional value that must be covered by BUSD or another collateral when using a futures trading account. 

On the other hand, maintenance margin refers to the minimum amount that investors need to keep trading position(s) open. Maintenance margin checks are continuous and help in margin utilization calculation. 

When a trader’s maintenance margin limit is hit, the open position gets liquidated.

3. Funding Rates

Crypto perpetual contracts don’t settle like traditional futures contracts. Therefore, exchanges require a system that ensures that the index prices and futures prices converge regularly, which is called the funding rate. 

Funding rates are calculated based on the price difference between spot and futures markets. Investors will pay or receive funding payments relative to the open market positions, which can have adverse effects.

For instance, funding rates may surge in an overheated bull market, making it costly for traders to hold long positions.

Pros & Cons of Trading Futures

Lucrative endeavors such as futures trading come with their fair share of advantages and disadvantages. Herein are the pros and cons of trading these crypto derivatives.

Pros

  • Crypto futures trading allows you to bet against the market. You can go long or short to profit from either direction of the market. 

  • With the use of leverage, traders can gain significant exposure to an asset with only a fraction of its total cost. 

  • Many traders use futures trading as a hedge against spot markets, which is great for any investment portfolio.

Cons

  • The high volatility in the cryptocurrency markets can be a blessing or a torment to traders because the direction of an asset is not guaranteed.

  • The exposure to leverage can lead to significant losses, especially for novice traders who do not implement a solid risk management strategy.

How to Trade Futures Contracts on Binance?

Trading crypto derivatives contracts on Binance Futures is pretty straightforward. If you are an existing user, you can get started by following these steps: 

  1. Open a futures trading account on Binance Futures. Please note that you must enable 2FA verification to fund your futures account before you start trading.

  2. Deposit funds to your futures wallet, such as USDT, BUSD, or any other cryptocurrencies supported by Binance Futures. 

  3. Select between the two derivative contracts available on Binance Futures: USDⓈ-M Futures and COIN-M Futures. 

  4. Select the appropriate amount of leverage for your position.

  5. Place buy-limit, buy-market, or any other type of orders available on Binance Futures. 

Conclusion

Crypto derivatives trading is a convenient way to speculate on the future valuation of digital assets. It can be lucrative for those with the proper knowledge and a solid risk management strategy. 

Binance Futures has grown to become the most liquid derivatives exchange in the market. It provides users with the tightest bid/offer spread to help them avoid unnecessary risks. The vast selection of trading pairs and enormous trading volumes make Binance Futures the preferred crypto derivatives exchange for more than 28.6 million active traders. 

Even inexperienced traders are taking advance of Binance Futures to sharpen their skills. It offers a dedicated mock trading environment for users to learn how to trade at their own pace with zero risks. Anyone can practice in real-time trading live cryptocurrency markets without losing any capital. 

So if you haven’t done so yet, sign up for Binance Futures today and explore the world of crypto derivative contracts!

Read the following helpful articles for more information about Binance Futures:

Written by Jane