Bitcoin futures are one of the most traded cryptocurrency derivatives. Therefore, it is important to have a good Bitcoin futures trading strategy. Basically, a trading strategy helps you to identify best trading opportunities. It gives an elaborate formula of identifying when to enter and exit trades/contracts.
Uses of Bitcoin futures
Before delving into the Bitcoin futures trading strategy, it is important to look at some of the uses of Bitcoin futures.
To start with, Bitcoin futures are used for market speculation. The trader speculates how the market shall move in the near future and opens futures contracts to hedge the market. For instance, if the trader speculates that the market price of Bitcoin shall drop, he or she buys short Bitcoin futures contracts. On the other hand, if he or she speculates that the market price shall rise, he or she opens long Bitcoin futures contracts.
In addition to market speculation, Bitcoin futures are also used as a risk management strategy especially by Bitcoin miners. Bitcoin miners mine Bitcoins and profit by selling the Bitcoins to investors. They can, therefore, use Bitcoin futures contracts to set the price at which to sell their mined Bitcoins. In so doing they will have managed the risk of a fall in Bitcoin prices in the spot market.
Best strategy for trading Bitcoin futures
To successfully trade Bitcoin futures; you will need to be very good at speculating the movements of the market prices of Bitcoin. Therefore, you will need to closely follow the Bitcoin spot market so as to ensure that you are informed of the market prices.
Bitcoin is usually very volatile, just like any other cryptocurrency; and its market price change very abruptly making it hard to track over a short time span. However, since Bitcoin futures are usually over a longer time span, it is easier to speculate the market price of Bitcoin much easily depending on what is going on around the world of cryptocurrencies.
Going through Bitcoin news on various websites and channels would greatly help you in doing market speculations. The news keeps you updated on what is going on around the world that is affecting the way Bitcoin is adopted; used, regulated and so forth. Therefore, you will stand a better chance in making a speculation; on how the prices will behave depending on your interpretation of the impact of the news to the Bitcoin ecosystem.
With an accurate market speculation, you shall be able to know whether to open a short or long Bitcoin futures contract. If you speculate that the Bitcoin market price will drop, then you should open a short Bitcoin futures contract. On the other hand, if you speculate that the Bitcoin market price will rise; you should open a long Bitcoin futures contract.
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