How to Trade Cryptocurrency Futures: 5 Beginner Tips for Crypto Traders
Cryptocurrency futures trading involves speculating on the future price of a specific digital currency. In this post we will be providing a series of tips for trading Bitcoin, and other digital assets, as securely and profitably as possible.
Firstly however, let’s get to grips with the fundamentals.
Bitcoin Futures Trading 101: What to Study
Before taking your first steps as a crypto futures trader, you need to understand the basics. This includes comprehending how the blockchain works, and how a decentralized financial ecosystem based on smart contract technology will impact the security, speed and reliability of your transactions. You will also need to become familiar with various kinds of cryptocurrencies, and the state of the current crypto market, as well as different types of wallets and exchanges.
You will need to do a fair amount of research into this emerging asset class before diving in. Evaluate the market capitalizations for various coins and assess the level of risk you are willing to tolerate before deciding how much money to trade on bitcoin futures.
You may also want to look at a number of different exchanges, depending on the amount and type of altcoins you want to trade, checking various factors, such as transaction fees, trading volume, security measures, fiat gateways, margin trading and more.
The Main Drawbacks and Advantages of Bitcoin Futures Trading
One of the primary disadvantages of crypto trading is the high risk that comes from the extreme volatility of the crypto markets. However, it should be noted that there are tools you can use to mitigate your exposure. Another downside is the danger of hacks and fraud that are more prevalent in the crypto space due to the anonymity and uncontrolled nature of the blockchain economy. The fact that not all governments and regulatory bodies have succeeded in keeping pace with the rapid developments in the crypto arena, and have each responded differently to the opportunities it presents, mean that you will need to research the obligations and protections related to crypto trading in your jurisdiction and any taxation law that may apply.
Yet, crypto futures trading offers a number of advantages, the most important being the incredible profit potential, and as the popularity and legitimacy of cryptocurrencies continues to grow, so will the revenue opportunities. In addition, traders benefit from the total transparency of blockchain transactions, which are published on a public ledger, while personal information remains completely private. Moreover, cross-border crypto payments are exceptionally fast, and since there are no middlemen, they are also extremely cost efficient.
1. Implement Risk Management Tools
The first and most important of our tips for crypto traders relates to mitigating your risk. For example, if you are hoping to make a larger profit, by purchasing altcoins with lower market caps, the risk will be higher. So, it is smart to diversify your portfolio, with a variety of different cryptocurrencies. On each trade you need to calculate your risk/return ratio, be careful with position sizing, and utilize Stop Loss and Take Profit tools.
A Stop Loss tool will automatically exit you from a trade that is going in the wrong direction, once it hits a pre-set price, so losses don’t get out of control. A Take Profit tool will exit you at a preset price on a trade going in the right direction, so you can get out while the going is good, meeting your target profit and ensuring you don’t lose all your gains as a result of a sudden price reversal.
2. Learn Technical Analysis Basics
Technical analysis for crypto coins uses price data to identify patterns and trends, enabling you to anticipate the future trajectory of a given digital asset.
If you wish to use technical analysis to find the right time to buy or sell it’s important that you gain a solid grounding in the different types of data display, as well as becoming familiar with fundamental technical analysis concepts, and indicators. You will need to be able to read a candlestick chart, identify resistance and support levels and be able to understand Bollinger Bands, Moving Averages and Relative Strength Indices.
3. Do Research on Crypto Asset Fundamentals
Another of our top tips for crypto traders is to do some initial fundamental analysis. When it comes to futures trading for Bitcoin or any other cryptocurrency you need to know everything you can about the company and the project behind a coin.
Is the utility meeting a market need and providing genuine added value? Is the technology innovative, with broad applications and does it function effectively? What about the team? What prior experience do they have? Then of course you need to find out as much as you can about the reliability, regulatory status, and security of the platform or application. This is all critical information if you are trying to determine whether the hype over a coin is a sign of long-term growth potential or simply temporary buzz.
4. Check Cryptocurrency News Sites and Community Channels
Another of our tips for trading bitcoin is to keep a finger on the pulse of the market, with leading crypto news sites like Coindesk, and CoinTelegraph, as well as social media sources, popular with the crypto community like Reddit, Twitter and Telegram.
It’s also a good idea to follow major crypto influencers and projects, so you can stay on top of market-shaping events, and over time, to also identify thought leaders and companies whose views or projects you trust, so you can get a read community sentiment.
5. Take Security Seriously
If you are wondering how to trade cryptocurrency futures more securely, there are a number of steps you can take. Firstly, if you are opening an exchange account then it is advisable to use a secure password and then provide yourself with an extra layer of protection by using two- factor authentication. Your private keys must always remain a complete secret, and while a hardware wallet like Trezor or Ledger is your safest bet, if you want the convenience of a web wallet then you should have an offline backup that is stored safely.
As we have seen, cryptocurrency futures trading can be incredibly lucrative. However, it can also be highly risky and time consuming, requiring hours spent on researching your chosen digital assets, tracking market activity and implementing strategies. Here at ArbiSmart, our EU licensed and regulated, automated crypto arbitrage platform solves all these issues, while still enabling you to benefit from the speed and profitability of the crypto markets.
Firstly, crypto arbitrage is one of the lowest-risk forms of investing. Rather than leaving you vulnerable to the dangers of crypto market volatility it involves taking advantage of temporary price inefficiencies- brief instances where a coin is available on different exchanges at different prices at the same time.
ArbiSmart’s fully automated platform identifies and exploits price inefficiencies on 35 exchanges at once, 24/7. An AI-based algorithm buys the coin on the exchange where the price is lowest and then sells it on the exchange where the price is highest to make a profit before the price difference can resolve itself.
All you need to do is sign up, deposit funds and the platform takes over. You get on with your day, while ArbiSmart’s automated system generates guaranteed passive profits of up to 45% a year, depending on the size of your investment.
Find out more about crypto arbitrage here, or check out the ArbiSmart blog to learn more about a wide range of crypto and blockchain-related topics.