how to trade crypto futures: Crypto derivatives 101: A beginners guide on crypto futures, crypto options and perpetual contracts

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how to trade crypto futures

In addition to hedging price risk, futures also allow market participants and traders to profit from speculation and arbitrage. Before diving deep into futures’ functions and trading strategies, however, let’s go over the nuts and bolts of a futures contract first. A crypto futures contract is an agreement to buy or sell an asset at a specific time in the future. It is mainly designed for market participants to mitigate the risk of future price changes in an asset.

how to trade crypto futures

Suppose an investor purchases two Bitcoin futures contracts totaling 10 bitcoin. The price of a single bitcoin when the futures contract was purchased was $5,000 each, totaling $50,000 for both futures contracts. The margin requirement for Bitcoin futures trading at CME is 50% of the contract amount, meaning you must deposit $25,000 as margin.

So, essentially this funding rate is a system of in which periodic payments are made to either short or long traders in the futures market. It is calculated based on the difference between the contract price and the spot price of the underlying. Derivatives offer traders more options to diversify their investment portfolios.

Crypto futures

Because of their high volatility, cryptocurrencies are prone to attracting speculative attention and investors. For instance, intraday price changes can give traders excellent profit, but they also carry a higher risk like a sudden downward price trend leading to losses. Despite the risk, a savvy trader pays attention to the margin requirement and other crucial rules to avoid having a terrible trading experience. Scalp traders prefer highly liquid markets as it is pretty predictable when one should enter or exit the market. Whales or large traders usually utilize this strategy to trade large positions. Derivative contracts are typically used to define the prices of underlying assets, making them a crucial part of the cryptocurrency economy.

  • As such, derivatives do not have an inherent value but rely on the value of the underlying asset.
  • It’s also known as intraday trading because trades are typically started and concluded within a single day.
  • Suppose an investor purchases two Bitcoin futures contracts totaling 10 bitcoin.

Investors can benefit from the HODL strategy since they are not subject to short-term volatility and can avoid the risk of selling low while buying high. The type of transaction determines the manner of operation of cryptocurrency trading in the cryptocurrency market. The act of buying and selling cryptocurrencies to earn a profit is known as cryptocurrency trading. The three elements that make up the definition of cryptocurrency trading are the operating mode, the object and the trading strategy.

These contracts are bought and sold between two commodities investors, and they speculate about that asset’s price at a specific date in the future. Crypto Futures on CoinDCX App are perpetual in nature and these contracts track the price of the underlying crypto asset very closely. Thus these contracts can be used as an alternative form of investing in crypto assets by investors who do not want to handle actual crypto assets but want to stay invested. Using the concept of leverage, traders are enabled to earn potentially higher profits on their trades as leverage allows you to control a larger contract size with relatively smaller margin money. If you are looking for the best crypto exchange for day trading or the best app to trade cryptocurrency, you must focus on financial or investment objectives first. Arbitrage, market-making, liquidity detection and momentum trading are four sorts of HFT strategies.

Arbitrage trading

It keeps you from making rash and impulsive judgments that can cost you a lot of money. If you are a beginner, you could even consider trading on the Binance Futures testnet to become familiar with the world of highs and lows. Another important thing to consider is selecting a reliable trading platform for crypto derivatives. You should select one that is established, with verified users, high trade volumes and safety measures to detect fraud.

As there is currently no legal structure in place to offer asset protection, crypto investors have little to no protection in the market. However, in the United States, certain exchanges comply with regulations by federal and state authorities. You buy in at both the highs and lows of the market when you use the dollar-cost averaging strategy. Crypto derivatives trading is a great option for both beginner crypto investors and seasoned ones.

  • Yes, crypto futures are extremely profitable, if used properly and is the trader is aware of sound money management techniques.
  • Alternatively, a put option is a bearish bet that the cryptocurrency’s price will decline.
  • Take perpetual contracts, for example, wherein shorts and longs pay the opposite position based on the funding rate.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. As of the date this article was written, the author does not own cryptocurrency. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

Advantages of Cryptocurrency Futures Trading

Our detailed guide covers the basics of crypto derivative types, trading options, tips for trading, and their advantages and disadvantages. Please note that the availability of the products and services on the App is subject to jurisdictional limitations. may not offer certain products, features and/or services on the App in certain jurisdictions due to potential or actual regulatory restrictions. The most common way of exiting a trade is through offsetting or liquidating a position before expiration. To offset a position, a trader needs to implement an opposite and equal transaction to neutralise the trade.

For example, futures can help to protect investments without compromising current crypto holdings. This is because futures allow you to hedge a portfolio for a fraction of its cost. For example, if your portfolio costs $100,000, you can hedge it by opening a short position in a futures contract. A 10x contract will only cost you $10,000, which is just 1/10 of your portfolio’s market value.

This approach would be repeated until you believe Bitcoin will no longer trade in this range. If you are interested in trading in crypto derivatives, stay in the loop with the latest news and detailed how-to guides. Determining which derivative is best for you entails choosing the right derivative based on the current price fluctuation trend. For example, if the market is bullish, you should go with an options contract. This means that even small price increases can result in large returns on your investment. Leverage allows investors to magnify small price movements and create massive profits.

While a traditional futures contract can deviate significantly, and the difference caused by the deviation is settled during the expiry and the contract is settled in cash. Thus, in the Futures market, a contract is issued when there is a seller and a buyer, and that creates the framework for crypto futures trading. The concept is pretty similar to that of traditional futures trading too, except for the perpetual contract part, where crypto futures have no expiration date.

Hence, it’s always prudent to ensure that you can bear whatever losses your actions may incur. One trick that seasoned traders employ is borrowing assets and selling the same to someone else. They do this hoping that a future price decrease will allow them to buy the same assets at a much lower price.

The backlog hurt traders who wanted to transfer cryptocurrency from their own wallets to exchanges. Trend or position trading involves holding positions for a few months to profit from directional signals. Usually, trend traders enter into short positions when they anticipate downward traders. However, they invest for the long-term if they foresee upward market movement. A cryptocurrency index fund is an investment vehicle that holds a portfolio of cryptocurrencies and is derived from a pool of funds committed by investors.

With derivatives trading, investors can use leverage to increase profit margins without needing to invest a large amount upfront. For example, if an option costs $800, a trader will bear this cost to enter, on top of the actual price of the asset they want to purchase. Explore Top Spot, Futures, and Perpetual Markets with the Exchange and choose from monthly and quarterly expiry dates for futures contracts. The profit and loss of one contract is obtained by multiplying the dollar value of a one-tick move by the number of ticks the futures contract has moved since purchasing the contract. CoinDCX is a Indian crypto exchange that offers Crypto Futures trading on its platform with a very attractive fee structure and series of tools to minimize risks and maximize profit potential.

how to trade crypto futures

If a trader expects the market to rally, they might long a futures contract; if a trader expects a coming plunge, they can sell a futures contract. In comparison to directly buying the underlying asset, traders can magnify their gains by increased exposure through leverage; but it also means they can suffer much greater losses, as well. CoinDCX App provides a very attractive Futures Trading platform for crypto investors to trade or invest in futures. With attractive fee structures, extreme flexibility when it comes to trading strategies, and the perpetual nature of crypto futures, it is built to cater every kind of investor or trader out there. The main difference between perpetual contracts vs. futures and options is that perpetual contracts do not have an expiry date. Positions can be kept for as long as the trader wants, provided they pay holding fees, called the funding rate.

Read our guide on crypto derivatives to understand how to trade Bitcoin futures. If a position cannot be liquidated at a price better than the bankruptcy price, the exchange’s ADL system can deleverage an opposing position from a designated trader. This is particularly helpful in cases where the insurance is insufficient to cover any loss incurred on the contract. Transaction costs are lower, slippage is lesser, and market conditions are more favorable overall. Liquid markets come with high supply and demand for assets, making them more accessible for buyers and sellers.

Furthermore, people who are wary of established systems may find this feature appealing. The cryptocurrency market is open 24 hours a day, seven days a week and is not physically transacted from a single location. Instead, individuals can conduct cryptocurrency transactions in various locations globally. You might try range trading it by buying BTC at $35000 and selling when it rises to $40000.

Special Considerations While Trading Cryptocurrency Futures

The same criteria also play an essential role in determining leverage and margin amounts for your trade. Government agencies regulate the maximum leverage amount allowed at regulated exchanges and trading venues. Building a crypto Futures trading plan is quite possibly the single most effective way of solving most of the issues that traders face while trading in the crypto Futures market. To ensure that this does not happen to a new trader entering the Crypto Futures market, let us take a look at some key aspects of managing risk in Crypto Futures trading. One of the most significant advantages of cryptocurrencies is that they do not require the involvement of a financial institution as an intermediary, which can lower transaction costs.

According to official definitions, a Futures contract is a legal agreement to buy or sell a particular asset, or security at a predetermined price at a specified time in the future. Underlying assets typically change in price, which means that the difference between the index price and the price of perpetual futures contracts is typically huge. If, for example, the price of the perpetual contract is higher than the index, those who chose to “go long” would normally pay the funding rate to cover the price difference. For example, if a trader shorts two bitcoin futures contracts expiring in June, they will need to buy two bitcoin futures contracts expiring on the same date. The difference in price between the trader’s initial position and the offset position indicates the profit or loss on the trade. Please note that virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status.

In traditional financial markets, derivatives derive their value from assets such as stocks, bonds, interest rates, commodities, fiat currencies and cryptocurrencies, hence the name. The steps to conduct trade in Bitcoin futures are the same as those for a regular futures contract. You begin by setting up an account with the brokerage or exchange where you plan to trade. Once your account is approved, you will need another approval from the trading service provider to start futures trading. Generally, the latter approval is a function of funding requirements and the account holder’s experience with derivatives trading.

Briefly put, it refers to how easily orders can be transacted within a market without affecting the price of an asset. It indicates how many buyers and sellers there are, and whether or not transactions can be facilitated easily. Having a positive funding rate means that all long positions must pay all short positions. On the other hand, a negative funding rate means that all short positions must pay long positions. “Call” and “put” are to Bitcoin options as “going long” and “going short” are to futures. A call option gives the right to purchase Bitcoin at an agreed price upon contract expiry.

Regardless, they must consider trend reversals using indicators like moving average convergence divergence and stochastic oscillator to increase the success of their investment strategy. Should holdings fall below maintenance level (margin), insurance funds help traders to preserve their funds from ADL. The purpose of this website is solely to display information regarding the products and services available on the App. The contract notional value represents the total value of the financial contract used to hedge the exposure. The notional value of a contract refers to the product of the contract unit and the futures price. To trade futures, you must have an account with a registered futures commission broker or introducing broker.


The contract’s value varies based on the underlying asset’s price (i.e., Bitcoin). CME uses the Bitcoin Reference Rate, which is the volume-weighted average price for Bitcoin sourced from multiple exchanges and is calculated daily between 3 p.m. This leverage is what allows one to potentially multiply their gains while speculating on the price of the underlying asset if the trade goes in the right direction. Since beginner traders are concerned about the financial risks involved with crypto investments, trend trading is suitable for them. Nonetheless, whether a novice or an advanced trader, one must conduct their due diligence before committing funds. However, crypto bots and signals are examples of automated technologies that can help you execute swing trades faster.

Mary Davis
My name is Mary Davis. I am successful broker. I want to share my experience with you through tutorials and webinars. For any questions of interest, please contact us by e-mail: [email protected]. +1 973-709-5130


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