Crypto futures is a popular derivative trading product that gives traders an opportunity to amplify their potential gains – and also their losses – while hedging against market risks and shorting assets. Futures markets tend to be highly liquid and they usually have lower trading fees, which makes them an enticing prospect for pro traders.
That said, futures trading is far from easy, and many traders make the mistake of diving in headfirst without any real plan. That’s the wrong approach. What every futures trader needs is a carefully planned strategy, or else they’ll end up as yet another cautionary tale of the dangers of playing the crypto markets.
So if you’re looking to get started with trading crypto futures, consider which of the following popular crypto trading strategies is best attuned to your desires, time horizon and risk appetite.
What are crypto futures and trading strategies?
Futures trading is the concept of buying and selling “futures” contracts. They’re a kind of derivative trading product, and the contracts represent the rights to buy or sell the underlying asset at a specific price on a future date, known as the expiration date.
There is a second kind of futures contract that doesn’t have an expiration date. These are known as perpetual contracts or perpetual futures, and they never expire, which means traders can speculate on the future asset prices indefinitely.
A sound futures trading strategy requires using a systematic methodology for buying and selling digital assets, based on predefined rules and criteria that enable smarter decision making.
Such strategies can be relatively simple, or extremely complex, and will take into consideration the trader’s investment style, their appetite for risk, the market capitalization of assets, portfolio diversification, available leverage, tax implications and other factors.
The best trading strategies for futures are based on the objective analysis of market data and can be focused on either market fundamentals or technical signals. Once you’ve selected a strategy, it’s critical to follow it diligently so as to avoid the mistake of making decisions based on emotions such as fear, greed and overconfidence, which is the downfall of most novice traders. Even so, while you should always stick to the strategy, the strategy itself should be re-evaluated at intervals, so as to optimize it over time and maximize its effectiveness.
Choosing a platform
An often ignored aspect of futures trading strategies is the trading venue. Traders need to select the most appropriate crypto exchange for futures trading, taking into consideration its user-friendliness, trading fees, security features and the type of assets it supports. Other aspects include the amount of leverage, funding rates and the level of customer support.
One of the most popular crypto futures trading platforms is VALR, the top crypto exchange in South Africa, which has been around for six years and was one of the first to achieve Financial Sector Conduct Authority Category I and II certification. It’s also regulated as an official Crypto Asset Service Provider and is approved for use in Europe and Dubai, among other territories.
It’s hard to beat VALR in terms of security, with its two-factor authentication to safeguard user accounts and many other advanced protections. It notably stores its digital assets in a selection of hot and cold wallets, ensuring it has sufficient liquidity while retaining enough funds in secure storage to cover customer’s deposits.
We like VALR because it’s one of the platforms with the most supported assets, with 16 futures pairs available to trade, as well as 10X leverage on most. Its deep liquidity means traders can enter and exit positions seamlessly at any moment, capitalizing on the rapid movements of crypto asset prices.
Of course there are plenty of other options, with some of the most notable venues being MEXC, which is reputed to have some of the lowest fees for futures trading, and Bybit, which is known for its simple user interface, making it a good option for beginners. And while VALR is among the best for high-leverage trading, Gate.io enjoys a similar reputation among traders.
Other cryptos that support futures trading include Binance, which supports an extensive range of assets but is aimed more at advanced users, while GMX, Gains Network and Vela are the most popular decentralized exchanges for futures traders who want to maintain custody of their funds.
The top futures trading strategies
1. Scalping
One of the best short term futures trading strategies is known as “scalping”. The aim is to try and make profits on the difference between the small and frequent changes in asset prices that occur minute-by-minute. Generally, when the crypto markets are flat (meaning relatively stable) such movements will be pretty negligible. The idea is to place numerous trades each day to capitalize on these movements and increase revenue.
The volatile nature of crypto makes it ideal for scalping, but this strategy requires traders to place tight stop-loss orders and maximize caution when using leverage to minimize risk. The best time to use scalping is during bull markets, when crypto prices are on the rise, but note that careful planning and swift execution are essential for success.
Some of the most common scalping techniques include “breakout scalping”, which involves monitoring the price action around established support and resistance levels and looking for signs that suggest a definite move – known as a “breakout” – above or below the resistance.
Another technique is called “range scalping”, where traders analyze periods of digital asset price fluctuations within a clear upper and lower boundary, and try to place their orders accordingly. Finally, the “news-based scalping” strategy is about monitoring news sources such as crypto media outlets and social media profiles to try and identify significant events that could impact on asset prices. Given how sensitive crypto prices are to major news, this can be a successful way to profit on the markets.
2. Day trading
Another popular short-term strategy is “day trading”. Basically, this involves buying and selling futures contracts on the same day in order to profit on price movements during that period. It’s a direct contrast to long-term investments, where investors buy and hold assets for months or even years.
Day traders attempt to take advantage of the volatile nature of crypto and profit on the likely minor price movements that occur within any 24-hour period. To do this successfully, traders must employ technical analysis to aid in decision-making, determine their entry and exit positions ahead of time, and make extensive use of leverage to amplify potential returns.
Some of the most common technical indicators used to inform day traders are moving averages (MAs), the Relative Strength Index (RSI), the Moving Average Convergence Divergence (MACD), the Fibonacci retracement and the Ichimoku Cloud.
3. Swing trading
For traders looking to capitalize on crypto asset price movements over the medium-term, the best strategy is “swing trading”. The concept is similar to day trading, but because swing trading involves holding for days or weeks before exiting a position, different technical indicators are used.
In swing trading, the most popular indicators are those related to “trend retracements”, such as the RSI and Bollinger Bands, which make it easy to identify when an asset has entered a clear uptrend only to experience a short-term pullback that can be capitalized on. Another option is “breaking trading”, which uses established patterns and ranges to try and identify potential breakouts and capture sizable profits based on the subsequent price increase or drop.
Finally, some swing traders like to use the “moving average crossover”, which involves analyzing the crossover of moving averages to spot possible trend reversals and continuations.
4. Position trading
Similar to simple “hodling” investment strategies, “position trading” is where traders will purchase perpetual futures contracts with the intention of keeping them open for weeks, or even months or years in order to capitalize on long-term asset price movements.
Doing this involves using another set of technical indicators to find suitable exit and entry points, such as 50-day and 200-day moving averages. One advantage of this is that it’s not necessary to monitor asset prices every day when using a position trading strategy, though risk management is still critical to success. Portfolio diversification and stop-loss orders are the main tools for managing risk.
5. Hedging
An altogether different strategy for futures contracts is “hedging”, which involves placing numerous trades in order to mitigate the risk of a rising or declining asset price.
To explain how this works, an example can be useful, so let’s imagine a trader has a primary position such as a long-term investment in a certain cryptocurrency. Hedging involves identifying and evaluating the risks related to that primary position. So, if your primary position is BTC, the main risk is the price of Bitcoin declining over time.
To hedge against this risk, traders can open a leveraged position using a futures contract on the same asset or trading pair, going in the opposite direction to the existing position, to offset any potential loss.
Strategies are key to success
In conclusion, once we understand the basics of futures trading strategies, it’s easy to see why they are so essential for traders to succeed. By choosing a sound futures strategy and sticking with it, even if the market moves against them, traders can offset their short term losses and realize significant gains over the longer term, without falling into the trap of trading on emotions.
Traders must remain disciplined and follow their chosen strategy diligently, executing swiftly according to the technical indicators that govern it. By doing this, traders can significantly improve their fortunes as they play the futures markets.
