Five Popular Misconceptions About Crypto Futures
Crypto Futures Trading evoke mixed feelings, from unbridled enthusiasm to outright skepticism. Some consider it a speculative craze, while others hail it as a game-changing innovation that will permanently revolutionize the crypto trading world.
Typically, futures traders engage in speculation on the expected future price movements of a cryptocurrency asset. To arrive at their prediction, they may employ fundamental analysis techniques, such as utilizing various metrics, as well as technical analysis methods, sometimes in combination. Based on their analysis, futures traders will anticipate how the asset is likely to behave in the future.
However, to make informed investment decisions, it is crucial to distinguish between fact and fiction. In this regard, there are several prevalent misconceptions about crypto futures trading that traders must avoid. Here are five of them.
- Trading Crypto Futures is difficult and expensive
Trading cryptocurrency futures may seem daunting to some, but it’s actually quite straightforward. At LBank, we prioritize security and ease of use for our users. We take care of all the technical aspects, provide a seamless exchange platform, leverage, and ensure the safety of your funds. Trading cryptocurrency futures is a quick and seamless process that can be done in just a few minutes with simple market orders.
However, when it comes to using more technical orders such as limited orders, it’s important to ensure that you set your stop loss and take profit to the most appropriate spots to avoid zero account balance.
2. All Futures Contracts Are The Same
It is a common misconception that BTCUSD is the only futures option available in most exchanges such as LBank. In reality, there are around 18,000 cryptocurrencies with varying ownership structures, levels of volatility, and properties. While Bitcoin is the most well-known cryptocurrency futures, the wider crypto futures market also includes Ether Futures, XRP Futures, Solana Futures and much more. It is important to always research the industry landscape, the assets involved, before choosing a contract to trade.
3. Crypto Futures = High Returns
Another misconception is that investing in crypto is a surefire way to high returns. This general conviction has been perpetuated by the “crypto bro” narrative and posts from several crypto influencers, but the truth is that crypto futures trading, like any other trading, is a zero-sum game.
You have the leverage tool to significantly amplify your potential earnings, but that same tool may also completely wipe out your account. It is essential to approach crypto trading with all the required knowledge, including things like what affects the crypto market in general and the futures you wish to trade in particular. By doing this, you get to make more informed decisions and minimize the risk of losing money.
4. Crypto futures trading is like gambling.
While cryptocurrency markets are known for extreme volatility, the notion that trading crypto futures is like gambling is a misconception. As with any asset class, there are risks involved, and traders need to take calculated risks according to their risk tolerance levels.
Trading strategies such as dollar-cost averaging can help mitigate the impact of volatility on investments. This involves investing a fixed amount at regular intervals, regardless of market performance, which can result in positive returns over time.
Ultimately, it is essential to know that trading crypto futures can yield high profits, but do come with substantial risks that should not be overlooked. One major risk factor is the use of leverage, which can amplify potential gains but also magnify potential losses. It’s important to carefully consider your risk tolerance and use risk management strategies, such as stop-loss orders, to limit exposure and protect your portfolio.
5. Cryptocurrencies Are Volatile, So Futures Trading Are Not Reliable
One common misconception is the belief that the volatility of cryptocurrencies means that futures trading cannot be reliable. The truth is, volatility is a key factor to consider. The crypto market is known for volatility, which can create exciting opportunities for traders. However, this volatility also comes with increased risk.
Additionally, when trading cryptocurrency futures, you can profit from both rising and falling markets. If you buy a cryptocurrency, you hope that its value will increase over time. However, when you speculate on the future price of a cryptocurrency, you can take advantage of falling prices as well as rising ones. This strategy is known as going short.
Final Remarks
Trading in cryptocurrency futures can be both lucrative and risky, as with any other investment. The high volatility of the cryptocurrency market can lead to rapid price movements, which in turn can lead to significant gains or losses. Therefore, it is important to carefully consider your risk appetite before entering the market and develop a sound risk management plan. By outlining your goals and risk tolerance, you can create a strategy that balances risk and reward and helps you navigate the volatile market with confidence.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
