1 Key Takeaways
- Understand how crypto perpetual trading works and the funding rates mechanism.
- Uncover the pros and cons of trading crypto perpetual.
- Explore the key differences between perpetual futures and traditional futures.
- 6 secret winning strategies for you to amplify their profits.
- Unveil 2 Bots to profit via Perpetual Futures.
- 7 bonus tips for you to master trading strategies.
2 What is Crypto Perpetual Trading?
Perpetual futures contracts, also known as perpetual swaps, are one of the 4 types of crypto derivatives.
These contracts allow traders to speculate on the future price of an underlying asset, such as Bitcoin or Ethereum, without actually owning the asset.
Unlike traditional futures contracts, which have a predetermined expiration date, perpetual futures do not expire.
This feature allows traders to hold their positions indefinitely, as long as they maintain the required margin.
3 How Do Perpetual Futures Contracts Work?
▍Funding Rate Mechanism: the Magic Behind
Crypto perpetual trading relies on a funding rate mechanism to keep their prices in sync with the spot price of the underlying asset.
The interest rate calculated every 8 hours, is then paid out proportionally between all long and short positions within the contract – ensuring an equitable balance throughout.
Funds are exchanged between long and short position holders based on the funding rate.
If it’s positive, those with a long stance pay interest to their short counterparts; if it’s negative, then the respective roles are reversed.
This exchange helps keep markets balanced by keeping contract prices aligned with spot prices.
Coinglass offers a one-stop view of the funding rates across all major exchanges and numerous cryptocurrencies.
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4 Pros of Crypto Perpetual Trading
▍Leverage Trading: Amplify Your Profits
Trading crypto perpetual can be a great way to maximize your return, as it allows access to larger positions than possible with just one’s own capital.
Leverage amplifies the potential for profits while at the same time heightening risk – so traders should exercise caution and keep in mind that losses are amplified along with gains.
Most crypto perpetual trading platforms offer leverage options ranging from 1x to 100x, depending on the specific contract and market conditions.
Leverage is a powerful tool, yet it must be used with an eye for risk management.
▍No Expiry Date: Trade On Your Terms
As we mentioned above, crypto perpetual trading does not have a predetermined settlement date, allowing traders to hold their positions indefinitely.
By not having an expiry date, traders can also avoid the inconvenience of having to roll over their positions from one contract to another when the settlement date approaches.
This rollover process can be both time-consuming and costly due to the potential price discrepancies between contracts and associated fees.
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5 Cons of Crypto Perpetual Futures Contracts
▍Liquidation Risk
Liquidation should be taken seriously. It occurs when a trader’s position is closed by the exchange due to insufficient margin.
If the market moves against a trader’s position and their account balance falls below the maintenance margin requirement, the exchange will liquidate the position to protect both the trader and the exchange from further losses.
To minimize the risk of liquidation, pay attention to maintaining an adequate margin balance in their accounts and use stop-loss orders to limit potential losses.
▍Market Volatility
The cryptocurrency market is known for its volatility, with prices often experiencing significant fluctuations in short periods.
This can make trading perpetual futures contracts both exciting and risky.
To manage the risks associated with market volatility, traders should have a solid understanding of technical and fundamental analysis, as well as risk management strategies.
Furthermore, it is crucial to keep up-to-date with the latest market news and developments, as these can have a significant impact on cryptocurrency prices.
Follow GoRichFIRE’s X account and Join Telegram channel for the newest trends, key big things, and discuss with others.
By staying informed and adapting your trading strategy to market conditions, you can better navigate the risks associated with trading crypto perpetual futures contracts.
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6 Crypto Perpetual Trading vs. Traditional Futures
▍Expiration Date
Perpetual Futures
No expiration date, allowing positions to remain open indefinitely.
Traditional Futures
A set expiration date requires the position to be settled, even if manually rolled over to a new contract.
▍Funding Rate
Perpetual Futures
A funding rate mechanism is used to tether the price closely to the underlying asset’s spot price.
Traditional Futures
No funding rate mechanism.
The price can significantly deviate from the spot price, especially as the contract nears expiry.
▍Complexity
Perpetual Futures
Relatively simpler due to the absence of an expiry date, making them more akin to spot trading.
Traditional Futures
Can be more complex due to expiry dates and the need to roll over contracts.
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7 6 Winning Strategies for Perpetual Futures
When trading crypto perpetual futures, it’s essential to employ effective strategies that align with your trading goals and risk tolerance.
I provide some popular strategies for you to consider when navigating the perpetual futures market.
Delve deeper into the 14 Best Crypto Futures Trading Strategies, enhancing your trading skills in just a matter of seconds.
▍Trend Following
Trend Following involves identifying and capitalizing on existing market trends.
Traders using this approach will enter long positions when the market is in an uptrend and short positions when the market is in a downtrend, aiming to profit from the prevailing momentum.
▍Mean Reversion
Mean reversion is based on the assumption that asset prices will eventually revert to their historical averages.
Traders employing this strategy will look for overbought or oversold market conditions and take positions contrary to the current trend, anticipating a return to the mean.
▍Breakout Trading
Breakout traders focus on identifying key support and resistance levels in the market.
When the price breaches these levels, traders will enter positions in the direction of the breakout, expecting a continuation of the current trend.
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▍Arbitrage
Arbitrage opportunities arise when the price of an asset differs across multiple exchanges or markets.
Traders can exploit these price discrepancies by simultaneously buying low on one exchange and selling high on another, profiting from the difference.
▍Hedging
Hedging is a risk management strategy that involves taking offsetting positions to protect your investment portfolio from adverse market movements.
You can use crypto perpetual futures contracts to hedge against potential losses in spot holdings.
▍Copy Experts’ Trade, Automatically
Understanding and making profits from crypto trading strategies can be challenging for newcomers.
However, platforms such as Bitget provide a feature called copy trading.
This feature lets you mimic the strategies of seasoned traders who have demonstrated their success in the cryptocurrency market.
By tapping into their experience and knowledge, you can enhance your wealth more swiftly and effectively, particularly during bad market conditions, known as bear markets.
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8 2 Trading Bots Tailored For Crypto Perpetual Trading
There are numerous types of trading bots, many of which are specifically designed to be user-friendly and straightforward.
Even beginners can easily set them up and get started.
Auto bots come with a range of features to maximize your trading profits:
24/7 Operation
Trading bots are always working, day and night, ensuring you never miss a trading opportunity.
Free your Time
You don’t need to sacrifice your treasure time to trade; they handle everything for you.
Efficient and Timely Execution
Trading bots are designed to execute trades quickly and efficiently, minimizing slippage and maximizing potential profits.
Here, I present two types of beginner-friendly auto bots for you.
▍Grid Trading Bot
The Grid Trading Bot is designed to make profits from the ups and downs of cryptocurrency prices within a specific range.
Using it effectively can help maximize your returns, particularly in bear markets.
It splits this range into several levels, automatically buying when prices dip and selling when they rise, resulting in profits.
Setting up a Grid Bot is straightforward, making it a helpful tool whether you’re a beginner or an experienced trader.
The Grid Bot can turn price volatility to your advantage, offering a more profitable approach than simply buying and holding.
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▍Arbitrage Bot (Moderate Mode)
The Bot offers a safer way for you to gain stable profits by earning funding rates from the volatile crypto market.
Here’s how it works, using Bitcoin as an example.
It buys Bitcoin in the regular market (spot market) and simultaneously sells Bitcoin (opens a short position) in the futures market. Think of it as betting on both teams in a game.
The bot earns interest, known as funding rates, a special mechanism of crypto perpetual futures contracts, without fretting over market fluctuations.
It’s like a steady income, irrespective of price changes.
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9 7 Tips To Master Crypto Perpetual Trading
▍Keep Trading Journal
There are many reasons why you should keep a crypto trading journal:
To Identify Areas For Improvement
You can track your win rate, risk-reward ratio, and average profit per trade.
This information can then be used to identify areas where you can improve your trading strategy.
To learn From Mistakes
By recording your trades in detail, you can identify the factors that led to winning and losing trades.
This information can then be used to avoid repeating the same mistakes in the future.
▍Protect Your Capital
Setting trailing stop and adjusting trade sizes relative to your capital base – ensuring sufficient margin coverage at all times.
When properly managed, these measures will help shield you from any potential financial harm while allowing for considerable returns on investment.
▍Stay Informed
To maintain a competitive edge in the ever-evolving cryptocurrency market, follow GoRichFIRE’s X account and Join Telegram channel for the newest trends, key big things, and discuss with others.
By doing this, you can stay apprised of changes occurring in the market to strategically shape your trading decisions around them.
▍Start Small
Start by trading with a small amount of capital and gradually increase your position size as you gain experience and confidence.
This will allow you to test your skills, refine your strategies, and learn from your mistakes in a risk-free environment.
▍Plan Your Trades
Having a well-defined trading strategy is essential for success in crypto perpetual futures contracts trading.
Your strategy should include specific entry and exit points, risk management guidelines, and criteria for selecting trades.
The 12 Best Crypto Futures Trading Strategies have the potential to greatly enhance your trading skills and expedite the accumulation of wealth.
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▍Leverage Responsibly
While trading with leverage can amplify your potential profits, it also increases your risk of loss.
Use leverage responsibly and always be aware of the potential risks associated with trading on margin.
Start with low leverage and gradually increase it as you gain more experience.
▍Understand The Market
Comprehending on-chain and market data is of paramount importance.
For insights that truly make a difference, consider exploring Glassnode – an invaluable resource that empowers your decision-making with high-quality data.
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10 Final Thought
Learning crypto perpetual trading could be smooth if you start with the basics and then explore strategies.
There are 14 best crypto futures trading strategies to help you form an effective plan to profit from the market.
In addition, you can enhance your understanding of crypto trading from the comprehensive ultimate guide of crypto trading 101.
Ready to dive into the world of crypto perpetual futures contracts trading?
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▍6 Winning Strategies for Perpetual Futures
▍6 Tips To Master Perpetual Futures Contracts
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12 Frequently Asked Questions
▍What’s the difference between standard futures and perpetual futures?
Standard futures contracts have a set expiration date, while perpetual futures contracts have no expiration date. This means that traders can hold perpetual futures positions indefinitely, as long as they maintain their margin requirements and cover any funding fees.
▍How long can I hold perpetual futures?
You can hold perpetual futures indefinitely, as long as you maintain your margin requirements and cover any funding fees associated with your position.
▍What is the advantage of perpetual futures?
Perpetual futures offer several advantages, including the ability to hold positions indefinitely, no expiration-related price manipulation, and frequent funding rate adjustments that help keep the futures price close to the underlying asset’s spot price.
▍Are perpetual futures legal in the US?
US citizens may find some restrictions when trading perpetual futures, but thankfully these financial instruments are not illegal in the country. To guarantee smooth and secure trading experience, it’s important to get informed on any potential local regulations before jumping into a transaction.
▍Do you pay funding rate on perpetual futures?
Traders of perpetual futures can experience either a bonus or penalty based on how the contract’s price compares to that of its underlying asset. To keep prices in balance, the funding rate is adjusted according to prevailing market conditions.
▍What are the disadvantages of futures?
Trading futures can be a great way to leverage potential profits, but not without risks. Leverage may magnify losses and complicate the process, while expiration dates put traders at risk of price manipulation or forced liquidation if they don’t maintain margin levels.
▍Why are futures so profitable?
Futures can be a lucrative investment opportunity, offering investors the potential for high returns by leveraging both rising and falling markets. However, this heightened profit-making capability comes with additional risk – the possibility of large losses should not be ignored.
▍Can you live off futures trading?
Yes, futures trading can be a lucrative and rewarding profession, but it pays to remember that success is not guaranteed. Making money from futures requires expertise in risk management strategies as well as an unwavering discipline – two qualities that few traders possess.
*Note
1. Profits are not guaranteed. Providers may change any terms at any time.
2. It’s crucial to note that regulations may vary, and users from certain countries might not pass KYC requirements. Always check your local regulations before participating in any program.
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