The popularity of cryptocurrency futures markets is increasing all the time. There are a plethora of excellent trading platforms available, each with a plethora of trading tools and the possibility to utilize trading bots.
Depending on the type of asset exchanged, these platforms generally earn from various types of interest or transaction fees. Trading futures contracts, in general, is dangerous, especially because most traders utilize leverage to increase their profits.
This necessitates traders selecting an exchange with which they can place their funds, such as Phemex or any of the other main exchanges, among the numerous available.
Let’s take a closer look at crypto futures, what they are, and how to earn from trading them.
How do crypto futures generate revenue?
Most investors understand the importance of keeping as much of their coins in a cold wallet as feasible because blocking internet access to tokens greatly reduces the danger of hacking. Of course, the disadvantage is that this position may not arrive at the exchange in time, particularly if networks are busy.
As a result, when traders seek to reduce their position during volatile markets, futures contracts are the preferable vehicle. An investor can leverage their holdings by 10x by depositing a tiny margin, such as 5% of their holdings, and dramatically lower their net exposure.
After their transaction arrives, these traders could sell their positions on spot markets and close the short position at the same time. Those hoping to enhance their exposure with futures contracts should do the exact opposite. When the money (or stablecoins) arrived at the spot exchange, the derivatives position would be closed.
To trade crypto futures, how much money do I need?
Consider the following scenario for a bitcoin futures contract from the CME Group. Let’s say an investor buys two bitcoin futures contracts for a total of ten bitcoin. When the futures contract was purchased, the price of a single bitcoin was $5,000, therefore the total price for both futures contracts was $50,000. CME’s margin requirements for bitcoin futures trading are 50%, which means an investor must deposit $25,000 in order to trade. They can use leverage to fund the remainder of the contract acquisition.
Is trading futures profitable?
Futures trading allows a competent investor to make quick money because they are trading with ten times the amount of risk as typical equities. Furthermore, prices in futures markets move faster than in cash or spot markets.
Is it possible to profit from Bitcoin futures?
Futures trading is a new and interesting way to make money in cryptocurrency. It’s basically a means to speculate on the price of cryptocurrencies in the future. Cryptocurrency futures are financial products and a type of contract that allow traders to acquire bitcoin or altcoins or sell them for a specified price on a specific date. Crypto futures traders forecast an asset’s value trend. You can go long or short on an asset as a futures trader. This choice must be based on your research and forecast. When you forecast that the price of an asset will rise, you go long, and when you predict that the price will fall, you go short.
You don’t own or buy the asset you’re trading when you trade futures. Crypto futures allow you to profit from a cryptocurrency’s volatility and price movement without having to hold the coin.
Assume an asset is currently trading at $100. A trader who expects a price increase goes long and buys ten futures contracts. The total value now stands at $1000. The total value of the 10 futures will now be $2000 if the trader’s estimate is correct and the asset price increases to $200. This means the trader has achieved a $1900 profit.
Alternatively, if he believes the asset’s value will fall, he can take a short position by selling ten $100 futures contracts for a total stake of $1000. If he is correct and the price rises to $50 as expected, and he buys the 10 futures back at $500, he will have made a $400 profit.
Is futures trading considered gambling?
The greatest strategy to avoid gambling in the futures markets (a futures trading gambling hybrid) is to understand a gambling trader’s thinking.
- You forego mathematics, odds-stacking, and serenity in favor of sentiment, hope, and excitementremember, hope is not a plan.
- You trade in a direction but can’t perceive the longer- and shorter-term patterns that surround the trend you’re following.
- You’re trading on a technical level without considering the bigger picture.
- You’re trading purely on the basis of fundamentals without considering the smaller or broader technical picture.
- You are trading sentiment without studying it using several indicators that can help you evaluate whether your sentiment reading is correct or not.
- You’re a poor trader if you refuse to “average down” when the fundamental and technical scenarios favor it (corollary: you’re a poor trader if you refuse to “average down” when the fundamental and technical situations favor it).
- You don’t employ enough indicators to get a variety of viewpoints on the price activity.
- You employ too many indicators, which causes your viewpoints on price activity to get muddled and your answers to become slower.
- You rely on (static) knowledge much too much, preventing your strategy from adapting to your intuitive (“gut”) decisions.
- The manner you incorporate your indicators isn’t adaptable to market fluctuations.
- You choose frequent positive payouts over infrequent negative payouts (the risk-to-reward ratio is badly skewed against you).
- You move around from trading system to trading system, without committing to one that works.
- You continue to rely on a system that has consistently failed to meet its past performance goals.
- You comprehend performance measurements but are unaware that, at your level of trading expertise, you are unable to judge them.
- Your decisions are heavily influenced by your most recent outcomes (recency bias).
- Despite evidence to the contrary, you seek reasons why your method might be correct (confirmation bias).
- You believe in a trading guru without seeing proof that he or she is profitable in the market (versus making money on your tuition).
Is it possible to trade futures without using leverage?
Trading in futures is, as we all know, quite similar to trading in the cash market. Futures, on the other hand, are leveraged because they merely require a margin payment. If the price change goes against you, however, you will have to pay mark to market (MTM) margins. Trading futures presents a significant difficulty in terms of minimizing leverage risk. What are the dangers of investing in futures rather than cash? What’s more, what are the risks of trading in the futures market? Is it possible to utilize efficient day trading futures strategies? Here are six key techniques to limit the danger of using leverage in futures trading.
Avoid using leverage just for the sake of using it. What exactly do we mean when we say this? Assume you have a savings account with a balance of Rs.2.50 lakhs. You want to invest the funds in SBI stocks. In the cash market, you can buy roughly 1000 shares at the current market price of Rs.250. Your broker, on the other hand, claims that you can purchase more SBI if you buy futures and pay a margin. Should you invest in futures with a notional value of Rs.2.50 lakh or futures with a margin of Rs.2.50 lakh? You can acquire the equivalent of 5000 shares of SBI if you buy it with a margin of Rs.2.5 lakh. That implies your profits could rise fivefold, but your losses could also rise fivefold. What is a middle-of-the-road strategy?
That brings us to the second phase, which is deciding how many SBI futures to buy. Because your available capital is Rs.2.50 lakh, you’ll need to account for mark-to-market margins as well. Let’s say you predict the shares of SBI to have a 30% corpus risk in the worst-case scenario. That means you’ll need Rs.75,000 set aside solely for MTM margins. If you want to roll over the futures for a longer length of time, you must throw in a monthly rollover cost of approximately 1%. So, if you wish to extend your loan for another six months, you’ll have to pay an additional Rs.15,000 to do so. Additional Rs.10,000 can be provided for exceptional volatility margins. Effectively, you should set aside Rs.1 lakh and spend only Rs.1.50 lakhs as an initial margin allowance. That would be a better way to go about calculating your initial margins.
You can hedge your futures position by adding a put or call option, depending on whether you’re holding futures of volatile equities or expecting market volatility to rise dramatically. You may ensure that your MTM risk on futures is largely offset by earnings on the options hedge this manner. Remember that buying options has a sunk cost, which you should consider carefully after considering the strategy’s risks and rewards.
Use rigorous stop losses while trading futures. This is a fundamental rule in any trading activity, but it will ensure that you exit losing positions quickly. Is it feasible that the stock will finally meet my target after I set the stop loss? That is entirely feasible. However, as a futures trader, your primary goal is to keep your money safe. Simply exit your position when the stop loss is triggered. That’s because if you don’t employ a stop loss, you’ll end up losing money.
At regular intervals, book profits on your futures position. Why are we doing this? It ensures that your liquidity is preserved, and it adds to your corpus each time you book gains. This means you’ll be able to get more leverage out of the market. Because you’re in a leveraged position, it’s just as crucial to keep your trading losses to a minimum as it is to maintain your trading winnings to a minimum.
Last but not least, keep your exposure from becoming too concentrated. If all of your futures positions are in rate-sensitive industries, a rate hike by the RBI could have a boomerang impact on your trading positions. To ensure that the impact of unfavorable news flows does not become too prohibitive, it is always advisable to spread out your leveraged positions. It has an average angle as well. When we buy futures and the price of the futures drops, we usually average our positions. Again, this is risky since you risk overexposure to a certain business or theme.
Leverage is an integral aspect of futures trading. How you manage the risk of leverage in futures is entirely up to you.
Is it possible to trade futures on Robinhood?
In its early days, Robinhood distinguished out as a brokerage sector disruptor. The fact that it didn’t charge commissions on stocks, options, and cryptocurrency trading was its main competitive edge. The brokerage business as a whole has united in eliminating commissions, thus that advantage has been eliminated. Despite growing cost competition, Robinhood has built a strong brand and niche market among young, tech-savvy investors, thanks to a simple design and user experience that concentrates on the fundamentals. In an effort to attract new customers and deepen the financial relationship with existing ones, the broker recently offered cash management services and a recurring investment function.
Is trading futures difficult?
Keep in mind that futures trading is difficult labor that takes a significant amount of time and effort. Even for the most experienced trader, studying charts, reading market commentary, and staying on top of the news may be a lot.
How do you make money trading futures?
Risk management is an important aspect of any futures trading strategy. If you’re not limiting losses with effective buy and sell stops, or using hedging strategies like buying options, it’s time to rethink your strategy.
You should also be aware that, while these protective measures are useful instruments for money management, they are not without flaws. You should be aware that your stop price may not always be filled, and you should be prepared for this.
Another aspect to consider: don’t sit on your losses for too long, or send too much good money after bad in an attempt to even out a losing position. While each transaction is unique, you’re usually better off setting stricter loss limits and moving on to the next opportunity.