Crypto Futures: The New Fast Lane To Day Trading Profitability

Posted by Ryan Hansen on Aug 8, 2018 12:51:00 PM

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In the midst of the cryptocurrency market boom in late 2017, ‘day trading’ became a viable, lucrative strategy for many traders. Yet with falling prices and lower trading volumes in recent months, traders are seeking new ways to accelerate their profitability.

Some context for those that may not be familiar with ‘day trading’: the difference between ‘day trading’ and other strategies such as HODLing, can be found in the timeframe. Day traders buy and sell financial instruments in the same trading day, hoping to capitalize on higher-than-average market shifts (also known as volatility).

As any crypto trader knows, volatility in the crypto markets can be exceptional. Even as the likes of BTC and ETH hover at less than half of their peak prices, it’s common for the value of coins to move anywhere from 10–40% in a given day.

Thus, the answer to the conundrum that day traders face in terms of achieving higher profitability may lie in crypto futures. One of the inherent qualities of crypto futures is leverage — with leverage, you can trade notional values worth 10, 20 or even 50 times the dollar value of what you’ve actually invested.

With leverage, you don’t need big moves to capture a nice profit. Rather, small moves are magnified. Repeating these small moves throughout the trading day can add up to a good sum by the time you call it a day. Additionally, when markets are jumping, leverage can provide the ability to achieve larger gains in faster time.

The power of margin

We’ve described a bit about how leverage and margin work before, but let’s go a little deeper.

In futures trading, the money you deposit with the exchange, in effect, a “good faith” deposit enables you to trade assets that are worth multiple times that value.

For example, with $7,000 you could either:

  • Buy approximately one BTC in the spot market, or
  • Post it as collateral to trade a futures contract with 10x leverage; enabling you to trade the value of approximately 10 BTC ($70,000), or
  • Simply allocate $700 of margin to trade one BTC futures contract (which then has a value of $7,000) with $6,300 remaining

This deposit is known as the ‘initial margin.’ Initial margins, which are set by the exchange or clearinghouse, typically range between 5% and 15% for standard, non-crypto contracts, and are based on the underlying volatility of the futures commodity. Considering this, one can easily understand why the initial margins for crypto contracts are higher.

Trading with leverage (margin) enables you to magnify your gains. Let’s say that the price of ETH increases by $75 on a given day. If you held 2 ETH, worth approximately $900 ($450/each), you’d be looking at an $150 gain. By deploying the same amount of money into a 10x leveraged ETH future, you could have traded a value equivalent to 20 ETH, netting you a gain of $1500.

Risk management — how practice makes perfect

As appealing as quickly turning a small investment into a large sum is, trading comes with risks. Day trading cryptocurrencies with the market conditions we’ve recently seen also has the potential to go against the trader, creating sharp losses in a short period of time.

Volatility is a prime reason. When prices fluctuate like they do in the cryptocurrency markets, large losses can be instigated just as easily and quickly as large gains can be achieved. Thus, traders must be always be aware of this risk and try to mitigate it.
As any seasoned trader knows, a good risk management strategy is essential.

Understanding how volatility can impact trading positions helps you figure out your ideal approach, whether it’s instituting loss limits or adjusting your outstanding contract sizes when markets get choppy.

Nothing beats real-life experience. Which is why we’re offering our trading competition, ahead of the full EMX launch. With our competition, you can trade in a simulated, risk-free environment, test out strategies in different market conditions and fine-tune your futures trading approach before you start trading the real thing.

Many ways to trade

EMX will give traders more options for crypto futures trading than ever before. While many exchanges limit their contracts to just a handful of popular coins, EMX plans to offer futures on a broad array of futures contracts from the crypto space — and from the traditional markets. So you can trade futures on ETH and BTC alongside futures contracts like oil and gold. The beauty of this is that if the crypto markets are having a sluggish day and commodities or equities are on the move, you can easily switch over and access those opportunities, all from a single point-of-trading.

Additionally, EMX will offer an index contract that represents the prices of multiple coins in one asset, helping traders avoid the need to comb through research for hundreds of tokens as well as removing some of the risk associated with concentrating funds into one cryptocurrency.

Crypto futures provide ample opportunity to enhance the returns for many day trading strategies. Whether you’re a speculator that acts of the latest news or a technical trader that looks for patterns in coin prices, futures can increase the trading firepower at your disposal.

To learn more about our upcoming trading competition and to keep up with all of our latest updates, visit EMX.com or speak with us on our Telegram channel.

This content does not constitute investment advice. Futures and options trading involves substantial risk of loss and is not suitable for all investors. Investors should understand the risks involved in trading and carefully consider whether such trading is suitable in light of their financial circumstances and resources. Past performance is not necessarily indicative of future results.

Topics: Why Futures?