In recent times, bitcoin futures trading has proved to be a reliable stream of making money in the cryptocurrency world. This has consequently seen a rise in the influx of traders – newbies and intermediate, get into the ecosystem in a bid to milk their fair share of the market.
Quite a lot of people get involved in futures because of the promising and potential profits but many fail to understand the dynamics, the technical know-how, the risks involved and the important points that could improve your chances of making guaranteed profit hence why a lot of people fail at bitcoin futures trading.
As an investor or a prospective investor, there is important background knowledge and understanding you need to gain before going into the field. If you are confused as to what these should be, don’t worry, I’ve got your converted! In this article, I will be sharing important factors every investor must consider before going into bitcoin futures. So, without any further delay, let us dive deep into the top important factors that need to be considered before investing in Bitcoin futures by every investor.
- Understand that futures is not an investment
As an investor, before going into bitcoin futures, you need to know that futures trading is not a get-rich-quick scheme nor is it an investment opportunity. It is like a short-term money-making opportunity. Unlike stocks and bitcoin spot trading where you buy a certain amount of shares and bitcoin respectively, at a relatively lower price and keep till prices move to your desired point for profit. In futures, you predict prices to move upwards or downwards. You are either predicting against the market or for the market. Either way, you must make a prediction and there are chances that you could be wrong. In bitcoin futures trading, you are to buy a financial instrument at a contractual price with a set liquidation point and an expiry date. Don’t get me wrong, there are ways to trade futures contracts for the long term to make a profit in the next couple of days, weeks, or months. The important point remains that your gaze remains on the time.
- Understand Leveraging & Risks
Leveraging might seem like an entirely new concept to newbies and prospective bitcoin futures investors so let’s dive into the concept briefly. What is Leveraging? Leveraging in layman’s terms means amplifier. It gives you the access you need to enter a larger market than your initial investment. Say, for instance, you want to invest $1,000 but then, you want to trade a market of about $10,000, leveraging acts as that tool that gives you access to such a market. Also, your profits and losses amplified as well. You can turn $1,000 to $10,000 and also turn $100 to $0. Remember, increasing leverage increases the chances of liquidations and therefore should be used in caution. As a trader you should be able to find out the right reward to risk ratio for yourself.
- Consider Technical and Fundamental Analysis
To succeed in trading bitcoin futures, you must first consider learning technical and fundamental analysis as a skill set. Any successful Bitcoin futures trader understands the background basics of Technical and fundamental analysis. These two concepts are the bedrock of futures. Technical analysis involves understanding market structure, flow, and time frame analysis and combining all these to come to an informed decision and bias. Fundamental analysis on the other hand involves getting important updates and news that could prove to move the market. Understanding when and how to use this news is a skill every investor needs to learn to be successful in trading bitcoin futures.
- Education/Join Crypto Communities Online
Cryptocurrency landscape changes quite frequently based on news and market sentiments. Therefore, it is very beneficial to get involved in online crypto communities to keep a track of what’s going on in the market. There are many platforms like twitter, reddit, telegram etc, where you can find good sources.
You should also read and try to understand the projects (whitepapers) you invest in. This will give you a better idea on the team and the future of the cryptocurrency you invest in.
- Know your source of investment
One factor you also need to consider before investing in bitcoin futures is your source of investment. The mistake many make is investing with borrowed funds. Generally, in futures, you are advised against trading with borrowed funds. As I have stated earlier, futures is not a get-rich-quick scheme and as such, your profit projections might be totally out of place. Also, trading with borrowed funds puts you at risk of trading with emotions and unyielding sentiments hence, your chances of making serial losses are increased. To invest in bitcoin futures, the intended fund must not be a borrowed fund or a loan. The funds must be free of sentiment for a seamless trading experience.
Conclusively, the list of factors to consider before going into bitcoin futures investment is not exhaustive and as such, the points I have highlighted in this article are just key basic factors you need to consider. Key concepts like margin and how to calculate your stop loss is one of those factors to consider before you trade bitcoin futures. A lot of prospective traders make the mistake of just taking an arbitrary point as their stop loss. This is the wrong method as you need to run actual analysis to determine your stop loss. Also, the futures market is entirely volatile so trade carefully and with caution. Invariably, make sure you diversify your portfolio and not put all your eggs into one basket as the risk in the futures market is high.
Investing in cryptocurrency is risky and therefore it is advised that you do your own research before putting any capital and do your due diligence before selecting an exchange to trade. One should consider every single factor that can affect the trade, directly or indirectly.
