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What If Its A Bear Market? The Case For Crypto Futures Trading

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Avatar for Ugomarcel
Written by   8
2 months ago

I started learning how to trade the financial market in 2007,well before the advent of crypto currencies. I started with forex trading. I devoted so much into learning it. I was quite young then so had enough time to my self. I must say it took me some time for me to understand what the market is all about. It took me approximately one year. Started trading live in 2010 and like most traders lost my first account, about $1000. This loss made me sink myself deeper into learning and understanding totally the market.

Overtime, as I continued to learn more, I was able to significantly understand the market. I could now trade without loss. I am not among the best there is, but I get bye.

The financial market, especially the crypto currencies market, does not move in a straight line. There will always be ups and downs,twists and turns. High today, low tomorrow. Sometimes a trend up or down can continue for weeks, even months. The onus is on you to identify that trend and follow it. Now what if by default you don't have the option to make money from a falling market, as the case with crypto spot trading where you only make money when price is rising.

The crypto market in most ways is similar to the forex market. Most times what works in one, works in the other, as you have in all financial market.

We can trade crypto currencies in two ways. Spot and futures trading. Spot trading is mainly buying and holding. Waiting for price to appreciate before sell off. You could hold your buy position for as long as you like. Take note that price does not always go up so could go against you for as long as you hold it. Imagine still holding BCH bought at the recent all time high of about $1700 in March. You would be loosing over $1200 as the case may be.

The second aspect of crypto trading is the Futures trading. Coming from a forex background I prefer this more than spot trading. They share basically the same features. Futures trading is also known as leveraged trading. You can magnify your profit by over 120x, that's one hundred and twenty times the normal returns. On the flip side you could also magnify your loss by same margin if the market goes against you.

One big advantage futures have over spot trading is ability to make money even in a bear market as against the spot market where you only make money in a bull market.

So technically if the market starts rising you can take advantage and make money. Consequently if the markets starts falling you could change your position to sell and still make money. Note you will have to be doing the right to succeed. For instance price is at 500 and you are convinced price will go down. All you do is simply place a sell order. As price continues to fall you will be making money from the bearish situation. Same thing applicable if you expect price to rise.

Picture courtesy of binance:

So basically you are open to opportunities in a bull or bear market. Unlike spot.

One major fear in the futures market is the fear of leverage. Some crypto exchange allows you a leverage of up to 120x. That is, if a normal spot trade gives you $10 for a profit. 120x will give you $1200 returns for that same move. That's the power of leverage. Also Remember you only need a little move against you to liquidate your account. Leverage is a killer, so use it wisely.

The question now is why would you want to use a high leverage to trade. As a trader I hardly go above 3x, even that's on rear occasion where the market is quite obvious. I mainly use 1x or 2x at the most. 1x is almost like what you have on spot.

In a market like the crypto market the more equipped we are, the better result we can get. Its good to be prepared to take any opportunity the market throws at us. Hodling is much better for a very long term investors. 90% of crypto traders are, as seen currently, mainly holding for short term gains. Unfortunately most of them sell off at a loss. Once price starts tumbling as it is now, fear sets in and they panic sell.

In summary what if this bearish conditions continues? Are you a strong hand, can you hold through a full blown bear? market? What if you could add trading especially futures trading to your skill set in this market? That would be great right? There is still time.

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Avatar for Ugomarcel
Written by   8
2 months ago
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