Best Crypto Futures Trading Strategies

As the popularity of cryptocurrencies increased, futures contracts were developed to provide greater liquidity and resources for traders actively involved in the market. Cryptocurrency Futures allow for easy speculation on future price changes using significant leverage. Nevertheless, the futures market requires knowledge of different trading tactics to minimize risks and optimize profits.

In this article, we will explore the concept of cryptocurrency futures and various strategies that can help you when trading them.

What are crypto futures?

Futures refers to an agreement between two individuals to buy a commodity, such as cryptocurrencies, at a predetermined price in the future. Traders often use this tool to protect themselves against potential fluctuations in the market.

A Bitcoin miner may try to secure a future price to protect their financial stability. The trader who buys the contract will reap good rewards if the value of Bitcoin exceeds the initial purchase price. Conversely, if the price falls, the trader is left with a loss, while the miner remains protected from the market’s unpredictable fluctuations.

What is a perpetual futures contract?

Perpetual futures were introduced to allow for around-the-clock trading of cryptocurrencies. Unlike regular futures contracts, these contracts have no specific end date. Traders can use them to profit from cryptocurrency price changes with significant leverage without actually owning the cryptocurrency itself.

To maintain equilibrium between the perpetual futures contract and the spot price of an asset, a funding rate is imposed. If the futures exchange reflects a higher value than the spot price, long position holders are charged interest, which prevents them from inflating the price. Similarly, the same interest is paid out to short position holders, incentivizing them to engage in shorting. This dynamic mechanism effectively drives the market towards self-correction, ensuring the continued viability of the futures contract.

Where to trade crypto futures?

OKX Futures is a robust and fluid futures platform that boasts an impressive leverage of up to 100 times. Traders can confidently engage in trading an extensive selection of over 100 cryptocurrency futures contracts while accessing a comprehensive collection of powerful tools that make trade execution seamless and efficient. In addition, OKX Futures offers a built-in support system for automated trading by bots, which allows traders to automate their trades according to their personal rules and strategies.

How to trade crypto futures?

Perpetual futures are the most popular type of crypto futures, and OKX is the best place to trade them. Here’s a quick guide on how to get started with OKX Futures:

Step 1: Join OKX

Step 2: Go to Trade and select “Futures.”

Step 3: Select the cryptocurrency you want to trade.

Step 4: Enter your position size and set the leverage.

Step 5: Don’t forget to close your position. You can set stop loss and take profit levels if you want.

If you want more detailed instructions, check out our step-by-step guide on how to trade perpetual futures on OKX.

Best Crypto Futures Trading Strategies

When you engage in futures trading, you do not own the underlying asset and are limited to maintaining an open position for an indefinite period of time. As such, it is crucial to design a comprehensive trading strategy before executing any trades. Here are several strategies to help you trade cryptocurrency futures:

Risk management

With futures contracts, you speculate on the price of a cryptocurrency at a specific point in the future. Often most trades are also placed with leverage. That’s why it’s important to manage your risks. Ideally, you should have an exit plan while placing a futures trade.

With the volatile nature of cryptocurrencies, make use of stop losses to ensure that you are not risking more than you are comfortable with. Leverage allows traders to open larger positions, amplifying profits. But the same goes for losses. Therefore, it is important to use leverage with caution.

Trade both ways

As a futures trader, your main goal is not to hold the underlying asset. Instead, you are only interested in speculating on its future price. This means that you are not limited to making profits solely from the increase in value of the asset, but you can also reap the benefits from its price decrease.

Take advantage of both longs and shorts to grow your earnings. They can also be used for hedging to offset potential losses in the spot market.

Follow the trend

Resist the urge to fight the market’s natural flow. Instead, use sophisticated indicators such as the Relative Strength Indicator (RSI) to accurately analyze market trends. When the market is bullish, opening a short position would be unwise. Embracing trends is one of the simplest methods of making profits in futures trading.

Patience

Practicing patience is important when engaging in the volatile space of futures trading. A single bad trade has the potential to yield significant losses, making it imperative to proceed with caution and precision. The choice not to trade is acceptable, as the market is constantly evolving and offers endless possibilities. It is wise to bide your time and wait for the ideal price movement that aligns with your carefully crafted trading strategy.

Sculpting

Scalping is a tactical approach to quickly enter and exit trades, with the goal of generating profits in a short time frame, often within seconds. The profits on individual trades may not be substantial. However, the compounding effect of executing many such transactions with leverage can ultimately result in substantial returns.

Swing trading

Unlike the fast strategies of day trading and scalping, swing trading involves maintaining a position for a long period of time, usually spanning several days or weeks. This approach allows traders to profit from significant, lasting price swings. However, this approach requires both perseverance and financial resources.

Even if the trade is initially favorable, it may take a few days to fully materialize. Given the unpredictable nature of the market, the asset in question can also undergo sudden and drastic swings. When using leverage, it is important to make sure you have enough liquidity to maintain the trade.

News-based trading

This strategy involves trading based on the news surrounding the asset. If the news is well received, it may result in a price increase. The opposite happens after negative news. As a trader, you need to analyze the market sentiment regarding the news. Timing is also important here. If you are trading on news that is already a few days old, the opportunity is probably already priced in.

Stay safe while trading crypto futures

With the volatile nature of the cryptocurrency market and the risks associated with futures, it is important to stay safe while trading.

Educate yourself: Familiarize yourself with futures contracts and the exchanges where you will trade them. Gain a solid understanding of cryptocurrency trading, futures, leverage, funding rates and other important concepts.

Start small: Reading can only teach you so much. Continue your education by gaining practical experience. Participate in small trades, but avoid high risks involving large sums of money or leverage.

Use a stop loss: Using a stop loss is essential to successful trading. Most traders are unable to sustain a failed trade indefinitely. It is therefore essential to prepare and stick to a comprehensive exit plan for all futures transactions.

Don’t use too much leverage: Using leverage can increase your profits exponentially, but it can also have the same effect on your losses. Therefore, it is crucial to consider the potential worst-case scenario and approach leverage with caution. By doing this, you can minimize the risk and maximize your potential profits.

Stay in control of your emotions: While trading, your emotions can get in the way. Meanwhile, fear and greed can cloud your judgment. It can also lead to bad, impulsive decisions. This is why it is important to remain rational at all times and return to fundamental analysis if necessary.

Backtesting strategies: After finalizing your plan, it is wise to verify that the strategy has previously proven successful. While this does not guarantee future success, it does serve as an added safeguard.

The last word

Cryptocurrency futures offer unlimited opportunities for savvy traders who have a deep understanding of the intricacies of the market. By implementing some carefully considered tactics and formulating a solid plan, you can expertly navigate the volatile landscape of crypto futures. However, achieving success in this market requires both discipline and strong risk management techniques. While it is unrealistic to expect profits from every trade, it is crucial to learn valuable lessons from any missteps and constantly refine your strategies.