13 Precautions before Trading Crypto Futures
To be a successful and fully professional crypto futures trader, one must follow some rules of thumb to maximize trading potential. In this article, we will discuss the top 13 steps to follow for professionally trading crypto futures.
1. Understand the Core Mechanism
A trader has to know the core and basic mechanisms of future trading before he/she can trade on a future platform.
Spot trading — This term of trading is also very safe as well as popular besides futures. As a spot trader and you want to start your new journey in future trading, I am sure you should first have this question: at the bottom line, how does future trading work? Moreover, you should also keep the ‘Higher Risk Factors’ in mind.
This is something very crucial to keep in mind, which is that the future market is under control of the brokers or exchangers. This was a market with all kinds of manipulations. There is no denying that the market can be manipulated, it initializes to see through their eyes, recognizing that they wished for the oblations of retail traders one and all will go away ‘rekt’ or ‘liquidated’.
2. Study the market you’re trading
Prices can change fast due to news, regulations, or a tweet with crypto. In crypto futures trading, it is more important to understand the market. On the other side, the crypto market is up 24×7 and highly volatile, so you must be aware of all news trends, technology updates and events etc.
Utilize tools ranging from technical analysis (charts, indicators) to fundamental insights (project news, blockchain data) so as to enhance decision-making. Always be informed since the market can change instantly and your trades are going to suffer in case of significant dumps! Topics that you ought to study for:
- Current Market Sentiment
- Liquidation Heatmap
- Technical & Fundamental Analysis
- Rules & Regulation
- Market Cycle & Trends
3. Make a Solid trading plan
A Trading plan is a must when trading crypto futures. Specify the entry and exit signals and rules for risk management, as well as specify how much money should be risked on per-trade basis. Whether you are a day trader focused on making quick transactions, swing trading to capture bigger daily or weekly price changes, or looking for futures trading over a longer-term trend trading opportunity.
Here are some of the topics on which you should make a plan for a solid future trading experience:
- Find the Best Crypto Exchange to Trade Smoothly
- Find Some Potential and Stable Trading Pairs (E.g: Btc/Usdt, Link/Usdt, Dot/Usdt)
- Identify Entry & Exit Points
- Set an Effective Goal of Your Trading
- Manage Your ‘Leverage’ Perfectly
- Make a Potential Roadmap
4. Test Yourself With Demo Trading
It is necessary to demo trade in order to become a successful player in the future market. You can use a demo account for practice so you can test yourself before the trading market.
Futures are traded on margin, so they are leveraged, which means that there will be significant profit to earn or lose if the trade moves other way. This helps newcomers get used to the platform and its wide range of services, test their strategies without risking any money, as well as experience the volatility of the crypto market.
In fact, it was designed for this exact purpose – to allow traders to perfect their trading strategies without any cost and no risk of losing real money, as well as to help build the necessary confidence and trading experience so that they are ready for live trading with real capital. It also allows you to:
- Learn the Trading Platform
- Testing Effective Strategies
- Realizing Market Behaviour
- Build Your Confidence
- Identify Your Initial Trading Mistakes and Solve Them
[Binance, Bybit, OKX and several exchanges offer demo trading facilities into their exchanger platforms for the beginners]
5. Future trading is too risky, Manage that risk
The risk of crypto futures trading is very high because there is leverage, so you need to limit the amount that you are willing to lose on every trade. The rule of thumb is to not risk anymore than 1%-2% per trade. For example, if you have $10,000 USD, you shouldn’t risk more than $100 or $200 USD. Exit losing trades using stop-loss orders and target a risk-reward ratio of 1:2 (take $200 in Gain) for every $100 you are risking. This step will always protect your capital and reduce the loss.
At first, use the same size for each trade and make sure you know how much you are willing to lose. Stop-loss orders and risk/reward ratios are helpful for the risk management techniques, which will always protect your invested capital.
Never risk more than you can afford to lose on a single trade.
6. Master the “Leverage” term
While leverage can allow you to have a bigger position with less capital, it also increases the chance of losing your fund.
Learn about multiple leverage types (5x, 10x) Trade with care, and be aware of what you are doing if you use leverage — remember to factor in margin calls and liquidation risk.
For example, 10x leverage means $1,000 controls $10,000. While it can increase profits, it also increases losses, so a 10% drop could wipe out your $1,000. Start with lower leverage, like 2x or 3x, to reduce risk. Understand margin calls and liquidation risks, and always trade with caution, risking only what you can afford to lose.
Does not think about using a very high leverage to get rich quick. So if the trade goes wrong then you can end up losing all your money.
7. Select a good exchanger with ‘High-Liquidity’
Exchanges will offer a large portion of variety in futures products. You will need to practice using the platform, such as learning how to execute trades.
When trading crypto futures, choose an exchange with a good liquidity pool for swift order executions and eliminate the risk of price slippage. The ideal exchange will be user-friendly, charge low fees, and list a myriad of futures products. Generally, you’re able to sell and buy a lot — say $10,000 — without affecting the price, which means high liquidity. Also, you can access the exchange’s fees, margin requirements and contract specifications, such as expiry dates, to fit your strategy.
8. Getting panicked is ‘Haram’
Trading futures due to the volatility of the markets (especially crypto) can lead you into a frenzy of panic and/or excitement.
Follow your trading plan and avoid making decisions with emotions based on fear and greed.
In crypto futures trading, when you are in panic by extreme market volatility, it probably causes bad decisions and losses. When there is a 10% drop in market, it could fool you into selling early or exiting your trading position during a negative portfolio. Instead, follow your trading strategy and manage the trade using techniques such as trailing stop orders to ensure your profit. Keeping calm and logical… in the long run, this will be what saves you.
You may also write code to capture profits in tools such as trailing stop orders (like a MACD) along with reducing your exposure to emotional factors.
9. Please ‘don’t gamble’!
Some traders approach futures trading with the same mindset as gambling in casinos. They believe futures trading can make them millionaires overnight with a small investment.
They use high leverage (e.g., 20x, 30x, 50x, 100x, or even more) to chase massive profits, effectively gambling all their money.
In the end, this often leads to them going ‘bankrupt’ or being ‘rekt.
10. Use that ‘Stop Loss’ option, to avoid risk!
Stop-loss option in crypto futures trading ends trading if your trade risks dropping by a certain percent of price. For example, if you have invested 10,000 USD and you have set a 5% stop loss, then the system will automatically stop your trade if you have lost 500 USD.
That helps mitigate significant loss since the crypto market is very volatile and even such a small price drop can result in great loss.
11. Never borrow money for ‘Future Trading’
Thousands of people have made this mistake in their futures trading journey. They borrow money from banks, friends, relatives, or other sources and risk it in futures trading. Most of them end up getting liquidated and are unable to repay their lenders.
Technically, when trading futures, the exchange or broker is already lending you extra funds through leverage to take a larger position. It would be unwise for someone to borrow additional money from other sources to execute futures trades.
12. Take Leverage within (1x – 5x), Not more
In crypto futures trading, it’s recommended to keep leverage between 1x and 5x to manage risk effectively.
For example, if you have $1,000 and use 5x leverage, you can control a $5,000 position. This means that for every 1% price move, your gains or losses are multiplied by 5. So, if the market moves in your favor by 2%, you would make a $100 profit instead of $20. However, if the market moves against you by 2%, you would lose $100 instead of $20. Keeping leverage within this range helps prevent rapid liquidation and reduces the chances of losing your entire position due to sudden market volatility.
Using higher leverage, like 10x or 20x, can quickly wipe out your capital with just a small market fluctuation.
13. Never take it as a ‘Permanent Profession’
In crypto futures trading, it’s important to remember that it should not be considered a permanent profession due to its high risks and unpredictability.
For example, even experienced traders can face sudden market downturns where a 10% price drop with 10x leverage could wipe out 100% of their capital. Unlike stable careers, crypto trading relies on volatile market movements, and consistent profits are not guaranteed.
Many traders may experience periods of high gains, followed by significant losses. Depending solely on this for long-term income is risky, as there is no guarantee of steady or predictable earnings over time.
