As a crypto newbie, I'm still learning to navigate the vast world of cryptocurrency. To say this field is huge would be an understatement - there's an abundance of opportunities to invest, trade, and explore everything crypto has to offer.
One of these opportunities I decided to explore was trying out Binance Futures.
For those who are unfamiliar with what "futures" are, it's basically a contract to buy or sell something at a future date. Primarily, you're speculating on the performance of an asset. Or, in simpler terms, you're essentially betting on whether the price of a cryptocurrency is going to rise or fall.
Should you buy, or "long" it, you're aiming to acquire the currency at a lower price and sell it when it gets higher.
But, you can also sell, or "short" it, where you aim to acquire the currency at a high price and watch it fall to a lower price.
What's unique about these plays is that you don't have to actually own the cryptocurrency to make a profit. Binance Futures allows traders to bet on the performance of the asset. What's also nice is that Binance Futures allows you to use leverage (default is 20x) where you can enter a position that's larger than what's in your account balance. This is especially convenient for those (like myself) who have low capital.
But unlike how most articles on Binance Futures would be written, mine isn't a success story. In fact, it's the polar opposite. However, I did learn some valuable lessons from the experience that I'd like to share for anyone who may be able to benefit from it. Feel free to learn from my experience so you don't get wiped out like I did.
1. If You Don't Know How to Read Indicators, You're In For A Bad Time
A basic principle: know what you're doing. When it comes to trading, especially speculative trading like Binance Futures, there's always a risk. However, you can manage your risk accordingly by knowing how to read the charts. Simply put: if you don't know how to read the charts, entering a position on Binance Futures is no better than gambling. Sure, there's only two directions a price can go: up or down - which by default puts your odds of gaining profit at 50%. But being able to predict accurately which direction it will go, how far it will go, and for how long can significantly increase your odds of success.
2. Never Play With More Than What You're Willing To Lose
Again, there's always a risk. Sure, Binance Futures is a great way to make a profit in a short period of time. But it can just as easily liquidate your balance. If you're new like me, take this lesson to heart: reckless plays can wreck you. Some crypto investors recommend having a starting balance of at least $100. However, if you're just starting out and learning how it works, I don't recommend putting in more than $20. Again, that's just my preference as someone with low capital and who prefers to manage risk accordingly.
3. Watch Out For Whales
Whales are basically investors with large sums of capital who are able to make a "splash" in the market by drastically moving the price of a cryptocurrency either up or down. Typically, market movements can run in "waves" so to say - what goes up must come down, for every green candle there's a red candle. These fluctuations are pretty normal on a day-to-day basis though drastic changes in price can also happen based on certain events or breaking news (which is why it's always a good idea to stay up to date with whatever you're betting on). However, if you notice a sudden spike or sudden drop in the price of an asset that could not have been predicted by technical analysis, and there's no major news to correlate with it - it's most likely a whale coming in to play.
Now, there's two things you can do when you notice whales influencing the price of a cryptocurrency:
A) Get out of your positions and wait for the market to be less unstable, or
B) Try to read the whale's patterns of play and ride along with it
However, if you're having a hard time figuring out what the whales are trying to do in regards to how they plan to manipulate the market - you're better off just getting out so you're less likely to get liquidated. Even if you're lucky and the whales move the price in your favor, it's still safer to take the profits and run than to keep playing in an unpredictable market.
4. Don't Take Small Victories For Granted
If your position allows you to profit at 5-10%, that's still a profit worth taking however small it may be. In general, it's much less risky if you can manage your plays to consistently profit 5-10% of the original amount you put in. They're small, but they can build over time - even short periods of time! And I say this because I've learned that being greedy by holding out for a profit at a higher percent can cost you.
There was one position I had where I was longing XRP, and my profit started skyrocketing to 40-50% but I was still holding out for it to reach an ever higher level. Had I just closed my position right then and there, I would have been $5 richer in the span of a minute. Instead, my hesitation cost me $10 just as quickly when the price dropped dramatically thanks to whales coming into the field and I neglected to set a stop-loss.
The moral of the story is this: if you're ahead, just take the money and run. And if you're in the red, that brings us to the next lesson:
5. Always Have A Stop-Loss Set Up
If you want to minimize your losses, the best tool you can use is the stop-loss function. As a basic rule of thumb, you always want to have a stop-loss at around -10% of your initial play when just entering a position. But, stop-losses can also come in handy even when you're in the green: should the price start to go the opposite direction, you can use the stop-loss to take profit at a point where you can close the position and still be ahead.
Binance Futures is a great way to earn a profit off of speculating on the performance of different cryptocurrency assets - but it also has its risks. If you know how to analyze the charts and manage your risk, you're more likely to succeed. However, if you're new like me - use caution and be wary of reckless mentalities that can easily cost you your account balance.