Crypto Futures Basics: How to Trade Futures with a Small Account

LBank Exchange
4 min readJun 2, 2023

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Crypto Futures Basics: How to Trade Futures with a Small Account

Futures contracts serve as legal agreements to buy or sell specific assets at predetermined prices and specified times. These contracts involve an obligation to purchase the underlying asset upon expiration. One of the benefits in trading crypto futures contracts lies in the inherent leverage they offer, which allows anyone to amplify their profits.

Leverage enables traders with limited funds to access markets that would otherwise be inaccessible unless blessed with big cash reserves. For instance, when day trading individual crypto assets, traders can typically trade with up to four times the amount of assets available in their accounts. However, the crypto futures market (highly leveraged) requires only minimal margin balance to support all open positions and open orders in your wallet. This article will discuss the different unique strategies available when trading crypto futures with a small account.

Trading Futures with a Small Account

The following are a few strategies you can employ to trade undercapitalized crypto futures account…

Analyzing Trade Patterns and Behavior

The first strategy to employ when trading crypto futures with a small account is to gather comprehensive data regarding your trade’s patterns. This entails diligently tracking your trades, profit and loss (P&L), and your responses to these outcomes.

This process surpasses the conventional practice of maintaining a trading journal. It involves creating a meticulous record of your behavior and reactions, enabling you to recognize specific patterns and pitfalls that may emerge.

For instance, one effective approach is to withdraw profits from your trading account after a successful streak of trades. With this, you can actively reduce your risk exposure, safeguarding your earnings. Also, it is important to assess how price spikes influence your responses and your ability to adhere to your trading plan. Conversely, in worse situations where the market moves erratically against your trades, it may be necessary to add more funds to avoid liquidation.

Overall, keeping a close watch over your trading portfolio is essential for fostering sustained capital growth.

High Reward to Risk Trades

A risk-to-reward ratio is commonly employed to assess the expected returns of a trade relative to the amount of risk involved in achieving the profit. The calculation of the risk-to-reward ratio entails dividing the potential loss if the price moves unexpectedly (the risk) by the anticipated profit upon closing the position (the reward).

Various reward-to-risk ratios are popular among traders, such as 2:1, 3:1, and 4:1, and these ratios may vary depending on the trading strategy employed. To enhance the likelihood of winning in small trades, it is beneficial to engage in trades where the potential profit is three times greater than the risk undertaken. By maintaining a reward-to-risk ratio of 3:1, you substantially increase your chances of attaining long-term profitability.

Building a Robust Framework

One effective approach is to establish a well-defined supervisory system that operates on strict rules for determining when to engage in trades, rather than relying solely on intuition or a subjective assessment such as “looks good.”

By defining specific risk and reward parameters, you can establish clear guidelines for executing trades. It is crucial to remember that when trading with a small account and without external oversight, you are solely responsible for your decision-making.

Therefore, developing a robust disciplinary system is essential in order to enhance your decision-making abilities and mitigate impulsive actions. This system will serve as a reliable support mechanism, aiding you in making better-informed trading decisions.

Mean Reversion Trades

Mean reversion in the futures market suggests that prices tend to revert to their average levels, making it difficult for extreme price movements to sustain over extended periods. Traders who use mean reversion speculate that an extreme level, whether it pertains to volatility, price, growth, or a technical indicator, will eventually return to the average. It is essential for a trader reading a small account to go against the tide of extreme movements and rely on historical averages.

To determine when a price might revert back to the mean, you can employ various metrics such as the distance from the Simple Moving Average (SMA). Technical indicators like Bollinger Bands.

Wrapping Up

Contrary to the claims of certain traders, it is often asserted that undercapitalized trading accounts cannot yield successful results. However, this assertion lacks accuracy. While it may be more challenging to trade small accounts profitably, it is entirely feasible if approached with the right strategies. Implementing robust risk management techniques, particularly adhering to some of the strategies stated above, is crucial for success.

Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.

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