As the cryptocurrency market expands, so does the number of cryptocurrency users around the world. Bitcoin being the market capitalization leader in the cryptocurrency market remains the most sought-after cryptocurrency. While there are numerous methods for trading Bitcoin, you can trade in Bitcoin without actually investing in Bitcoin via derivatives trading on Delta exchange. Spot trading encourages risk-averse investors to purchase Bitcoin and hold it for an extended period of time. Bitcoin futures trading, on the other hand, attracts traders who want to capitalize on market movements even further by speculating on Bitcoin price movements and earning profit from the same.
Trading Bitcoin futures can be profitable if you know how to do it right. In 2021 the average daily volume of Bitcoin futures trading was 10,105 futures contracts, 13% up from the previous year, and the numbers are growing each day. But do you know how to make the most of Bitcoin futures trading? We have got you covered!
What are Bitcoin Futures?
Cryptocurrency futures are contracts between two investors that bet on the future price of a cryptocurrency. In layman’s terms, Bitcoin futures require you to agree to buy or sell Bitcoin at a specific price on a specific date, regardless of the final price. The expiration date or contract settlement date is the agreed-upon date by which both parties must fulfill their obligations. Crypto futures contracts are similar to standard futures contracts for commodities or stocks. This is because they, too, allow you to bet on the price movement of an underlying asset.
A futures contract is a type of derivative trading product. Bitcoin futures allow investors to gain exposure to Bitcoin’s market performance and price trends without having to purchase the cryptocurrency. Trading futures is thus an alternative to purchasing or selling the underlying cryptocurrency or doing spot trading. It has several advantages over Bitcoin spot trading. These include the ability to go long or short and gain access to leverage at just a fraction of the actual price of the underlying cryptocurrency.
Pro Tips to Trade Bitcoin Futures
Know the Basics
Before you begin trading any cryptocurrency, you must first understand the fundamentals. Trading Bitcoin futures necessitates a thorough understanding of both the futures market and the overall Bitcoin market. To trade Bitcoin futures successfully, you must understand the ins and outs of both fundamental and technical analysis. Fundamental analysis will provide you with information about the company, the efficiency of the team, and the potential of a cryptocurrency project. If you buy a coin based solely on the hype, the chances are that once the hype wears off, the cryptocurrency will fail, wiping out all of your investments. Since Bitcoin is the alma mater of all cryptos, we can do away with the fundamental analysis bit, but we cannot ignore the technical analysis and interpretation.
Meanwhile, Bitcoin technical analysis makes use of price data to identify patterns and trends. These two factors combined will allow you to forecast Bitcoin’s future trajectory more accurately and place more profitable bets. Bitcoin futures trading is riskier than stock trading, but much less risky than trading Bitcoin in the open market. It also has a higher potential for growth.
Select a Trading Strategy
Once you understand the fundamentals of trading Bitcoin futures, you must select a trading strategy that meets your investment objectives. There is no one-size-fits-all trading strategy. As a result, selecting the best trading strategy entails more than simply replicating a popular strategy or one that is trending on social media. A detailed layout of how you would enter and exit positions, including entry and exit indicators, position-sizing, and stop-loss placements, must be included when developing a trading plan. For example, suppose you buy one Bitcoin futures contract to be executed in December at $20k. With a bracket order, you could set a stop loss exit at $18k per BTC and a profit exit at $25k per BTC. That way, you’re attempting to limit your risk to $2k per BTC while maintaining a profit potential of $5k per BTC.
You must also keep the following points in mind while planning the perfect trading strategy for trading Bitcoin futures:
- Identify what type of trader you are – your risk appetite, investment horizon, etc.
- Be prepared to make adjustments if any risks arise.
- Determine your long-term investment goal.
- Know the level of your risk tolerance and long-term financial goals.
- Learn about several trading strategies to choose the best that suits your investment needs.
Develop a Risk Management Plan
The crypto market is highly volatile. The risk related to popular cryptocurrencies, such as Bitcoin, is low but never zero. Furthermore, trading Bitcoin futures with an emotional and compulsive mindset can endanger your trading career. Bitcoin futures trading entails speculating on the asset’s future price. However, it is more than just gambling. Losses in Bitcoin futures trading can quickly add up and deplete your capital. As a result, risk management is the most important aspect of Bitcoin futures trading.
When trading futures, you should consider each penny invested as 100 times its actual value. If your account is worth $2,000, you should be extremely reluctant to lose more than $20. As a result, ensure that you have a proper risk management plan in place. This will allow you to set realistic expectations, protect your capital, and avoid letting emotions dictate your trades.
A long-term Bitcoin futures plan can help you profit from rising BTC prices. When the price of Bitcoin falls, you can profit by going short and vice versa. This feature of futures trading allows you to profitably navigate all types of market conditions. To trade Bitcoin futures, however, it is critical to select a reliable trading platform. Delta Exchange, for example, has low trading fees, tight spreads, and large order books for their BTC futures contracts.
These characteristics boost the profitability of your Bitcoin futures trading. Furthermore, you can set TP / SL (Target Profit/ Stop Loss) with your order on Delta. Advanced order types and instruments like options and interest rate swaps can also be used to develop hedging strategies. Delta’s professional charts and advanced analysis tools will help you identify profitable Bitcoin futures trading opportunities quickly. Ready to make the move and trade Bitcoin futures? Hop on to Delta Exchange!
Passionate Writer, Blogger and Amazon Affiliate Expert since 2014.