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This educational resource, pertaining to trading and investing, is a continual work in progress and intended for users who are interested in self-educating themselves, there are no fees or classes. For those interested in learning more about the website’s tools, the wiki will be more insightful. As a disclaimer, nothing here is financial advice, and the examples provided are incidental.
Table of Contents:
Introduction to Crypto Futures
In many ways, cryptocurrency futures function almost exactly like their commodity counterparts, but there are a few differences. Most crypto exchanges allow you a substantially larger amount of leverage to play with. Whereas traditional futures contracts are capped at a 20x, you can easily find 100x leverage and higher if you look around. This allows you to profit more substantially if you are right, but a move in the wrong direction means your margin is liquidated entirely (all your money) when you are wrong. There are no shortage of stories of billions of dollars worth of positions getting liquidated during sharp down turns. Exchanges typically won’t close out your position after a margin call is ignored, only once all your margin has been consumed do your positions get closed. Unless you are trading on some really good data, it is not advised to use higher leverage (anything more than 20x). Only if you are completely okay with losing everything you invest should you do this.
One of the main advantages of leveraged crypto trading is that it is truly 24/7, 365, it doesn’t close for holidays. Crypto leverage is purely speculative, there is no market for delivery of the underlying asset. Also keep in mind that the tax advantages of traditional futures do not exist for crypto ones, unless you are trading futures through a traditional brokerage. Even then, you are limited to Bitcoin, Ethereum, Solana, and XRP and do not have as much flexibility with leverage choice. If you are planning on leverage trading memecoins or anything beyond those 4 coins, you must look to crypto exchanges.
How do Crypto Futures Function?
They are much simpler than commodity futures, simply because you don’t have to worry about specific margin amounts. You can bet as much or as little as you’d like, and adjust leverage tolerance to your personal taste. Typically, you are charged a daily maintenance fee to keep the position open, a fee which grows depending on how much money you are borrowing as leverage. Beyond that, it functions just like ordinary futures, you profit if the trade goes your way, and lose if it doesn’t, your only risk being full liquidation. Higher leverage positions mean that you can get wiped out with just a 2% or less downturn, which in the crypto market is a fairly common occurrence. Keep your liquidation price in mind when setting up your contract and calculate how much of a move in that direction it takes for it to hit.
Exchanges and Rules
Crypto futures, outside of the few supported above, are actually rather difficult for Americans to get into. For non-Americans, the world is your oyster. MEXC, OKX, Binance, and many other exchanges offer you hundreds of different pairs to trade and leverage limits up to 200x or more. For those who really want to get degenerate, Rollbit offers 500x and 1000x leverage, but you can get wiped out so easily using these that they are a novelty at best. None of these options are available to Americans. Coinbase and Kraken offer some basic futures options, but these are limited in terms of leverage and pair choice. You will not see more than the largest pairs available here, but they do make up for it by being very liquid markets. If this is good enough, you can stop here. There have been cases of Americans buying citizenships in micro states in order to access markets unavailable in the US. CoinMetro is an exchange based in Europe that allows Americans to participate in crypto futures through them, the fees are not the greatest, but it is an option for those really wanting to get their hands on leverage trading crypto.
In Closing
There really is not too much more to add about leverage trading crypto, unlike the currencies of foreign governments, each crypto has their own niche and is influenced by different things. Many crypto traders rely solely on technical analysis when trading them, others might try using the news, as crypto is quite susceptible to the press. Back in the day, watching the US, China, or EU, issue legislation on ctypto was a great short position signal, but things seem to have cooled down since then. Now that massive hedge funds own huge portions of the crypto marketcap, it is unlikely that severe measures will be taken against crypto again. As mentioned before on the traditional futures trading article, stick to pairs with the most liquidity, there are times when you could make a killing with a low liquidity pair and then struggle finding a way out of your position. Remember that leverage trading is not a form of investing, you are only trading moves in the market. Make sure you have a good idea of when you want to close and set stop losses to prevent losing all of your capital. Good luck.