Perpetual Futures

How To Trade Perpetual Futures 101

By Crypto Coon | Coonville | 24 Aug 2020

So you're interested in trading crypto? This is a 101 crash course to mastering the most traded derivative instrument that is called "Perpetual Futures". Fear not because perpetual futures is not as complicated as you might think. There is a reason why perpetual futures is the most popular crypto derivatives instrument, that is because it is so easy to use unlike options. Simply put, if you can spot trade(normal trading) than you can trade perpetual futures as well.

So why use perpetual futures verses spot trading? Perpetual futures like all derivatives allows you to profit both off long and short. Spot trading you can only profit off longs. Perpetuals futures also allows you to use leverage. Most offer up to 100x leverage!. But you need to know something about using leverage. Higher reward ALWAYS means higher RISK. Depending on who you ask, most professional traders say you should never use more than 20x, some say 10x or less. If you have higher leverage, you increase your chances of getting liquidated, that means losing all your money and paying hefty liquidation fees.

Index Price: Average price from an aggregate of spot exchanges. They do this to avoid price manipulation by dumping/pumping price on one exchange. Think of this as the true price of a crypto asset.

Average Price: This is the average price of your position. If you bought 1,000$ BTC at 10,000$ then your average price is at 10,000$. If then you buy another 1,000$ at 11,000$ then your average price position will be 10,500$.

Mark Price: Think of this as the price that a crypto futures is currently trading at on your exchange. This will be close to the Index price but not exactly. This is the price of the futures contracts, not the true price of a crypto asset. It can be more or less than Index Price(true price) because of trader's sentiment. So if a majority of traders think prices will go up, then mark price will be much higher than Index price. And the opposite is true if more traders believe prices will decrease.

Funding Rate: This is a mechanism to keep mark price and index prices close to each other and all perpetual futures exchange have this mechanism. So if on an exchange there are many more longs traders than short traders. The funding rate will be positive, and long traders will have to pay short traders a small fee. And the size of the fee depends on the ratios of longs-to-shorts. Some exchange have a continuous funding rate fee, which means every couple seconds fees will be distributed out, like Deribit. Others exchange will have a daily settlement where if you don't close your position at 8:00 UTC then you will either have to pay funding fees or receive fees if you're trading opposite of popular sentiment.

Liquidation Price: Simply put, price at which you will get liquidated and lose all equity in your balance. Avoid this at all cost by using stop lost or you will be force to pay hefty liquidation fees.

Nobody can teach you to be profitable in a short blog post, it's not possible. But here are some tips to get started.

1. You will most likely lose when you first start, so start small. Don't expect to be profitable when you just started, if you do end up winning big that is just luck. Expect to lose and start slow using many small trades.
2. Always use stop lost, you will either learn this the easy way or the hard way.
3. Do not gamble, learn and start to use TA and risk management strategies. There is a fine line between being a trader and a gambler. If you are susceptible to gambling, I suggest you not trade crypto or any assets. Be honest with yourself, don't trade if you have gambling decencies. You can easily ruin your life. Even if you don't have decencies they can easily develop so be self-aware at all times.

This is not meant to be a complete guide, but I hope it gets you started. Before seriously trading, lookup videos on how to trade on the exchange that you have chosen since each exchange is a little different. And some futures exchange that I recommend are Deribit, Bybit, Phemex, Binance. Just don't use Bitmex, they are terrible. If you are from a blocked country, simply use a VPN during account creation, you do not need to have VPN on after that. Two good free VPN are Windscribe and ProtonVPN.

*repost from my hive blog

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Crypto Coon
Crypto Coon

College Dropout Turned Fulltime Crypto Trader To Survive Corona


Fulltime Crypto Trader | DeFi Enthusiast

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