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First Steps in Crypto Perpetual Trading: A Beginner's Guide
Perpetual trading has rapidly gained popularity as a unique form of trading in the cryptocurrency landscape. It might seem complex for those unfamiliar with the details of this trading mechanism.
How does perpetual trading work? What are the best perpetual trading strategies? Which perpetual trading platforms should you consider using? If you're looking for answers to these questions, you're in the right place.
This guide simplifies perpetual trading for beginners. It offers insights and suggests strategies to help you confidently trade in the crypto world and have a smoother experience.
Ready to understand perpetual trading in crypto? Dive into our detailed guide now!
Perpetual trading in crypto is a type of contract that lets you Put money on the price of a cryptocurrency without owning it. Unlike regular contracts, it has no expiry date, so you can keep your position as long as you want. It's popular in the crypto world because of its flexibility.
Perpetual trading works through a type of futures contract called a "perpetual contract." Here's a simple breakdown:
1. No Expiry Date
Unlike traditional futures contracts, perpetual contracts don't have a set expiration date. This means you can keep your position open indefinitely.
2. Price Alignment
To make sure the price of the perpetual contract stays close to the actual (or "spot") price of the cryptocurrency, there's a mechanism called the "funding rate."
3. Funding Rate
Periodically (often every 8 hours), payments are made between traders who are risking on the price going up ("long" positions) and those risking on the price going down ("short" positions).
If the contract price is above the spot price, those with long positions pay those with short positions, and vice versa. This exchange helps align the contract price with the actual market price.
4. Leverage
Many platforms allow traders to "borrow" money to increase the size of their trades, a concept known as leverage. This can amplify both profits and losses.
5. Margin
You don't have to pay the total amount of your trade. Instead, you provide a "margin," which is a part of the trade's total value. However, if the market moves against you significantly, you might need to add more funds or close your position.
Looking for the best crypto's for perpetual trading? Get started with our top picks today!
We must address two primary questions to determine the best cryptocurrencies for perpetual trading.
1. Why Certain Cryptos?
Just as some soccer teams are more popular and watched than others, some cryptos are more traded and have better liquidity (meaning more people are buying and selling them).
For perpetual trading, choose popular cryptos, which are more stable and have fewer sudden price changes.
2. Which Cryptos Are Best for Perpetual Trading?
Based on what we knew in 2023, these are the top cryptos for perpetual trading due to their popularity and market size:
These are well-known coins with many traders. They usually have clear price trends, which are easier for beginners to follow and understand. Plus, due to their popularity, most trading platforms offer perpetual contracts for these coins.
let's explore the advantages and disadvantages of perpetual trading in simple terms.
Advantages of perpetual trading
1. No Expiry Date
Unlike other futures contracts, perpetual contracts don’t have an expiry date. This means you can keep your trade open as long as you want, giving you flexibility.
2. Easier to Understand
Because there's no expiry date, you don't have to worry about rolling over to a new contract or dealing with the complexities of contract expiration.
3. Leverage
You can use borrowed money to increase the size of your trades, leading to more significant profits if the trade goes in your favor.
4. No Need to Own the Asset
You can profit from price changes without owning the actual cryptocurrency. This can make it easier and cheaper to get started.
Disadvantages of perpetual trading
1. Leverage Risks
While leverage can increase profits, it can also increase losses. If the market moves against you, you could lose more than your initial investment.
2. Funding Rate Costs
Periodic payments between traders (funding rate) can add up over time, especially if you're on the paying side for an extended period.
3. Price Volatility
Cryptocurrencies are known for their price volatility, which can be a double-edged sword. Rapid price swings can lead to significant profits or losses in perpetual trading.
4. Margin Calls
If the market moves against you and your margin (the deposit you put down for your trade) falls below a certain level, you may need to add more funds or close your position.
5. Complex for Beginners
Perpetual trading, especially with leverage and funding rates, can be complex for beginners and requires careful management and understanding of the risks involved.
In short, perpetual trading can be profitable but risky, mainly because of leverage and the unpredictability of the crypto market. Make sure to understand the risks before starting.
Want to succeed in perpetual trading? Explore our expert tips and strategies now!
Here are some critical tips for beginners looking to get into perpetual trading:
1. Start Small
As a beginner, it's wise to start with a small amount. This way, you can get a feel for perpetual trading without risking too much.
2. Understand Leverage
Leverage allows you to trade with more money than you have deposited. While it can increase profits, it can also increase losses. Ensure you understand the risks before using high leverage.
3. Stay Updated
The crypto market is dynamic. Regularly follow news and updates, as real-world events can significantly affect prices.
4. Use Stop-Loss
Setting a stop-loss order determines a price at which your trade will automatically close to prevent further losses. It's a way to protect yourself from sudden market moves.
5. Manage Emotions
Trading can get emotional, especially with money involved. Try to make decisions based on logic and research rather than emotions like fear or greed.
6. Educate Yourself
Understand the market, perpetual contracts, and funding rate specifics. The more informed you are, the better your choices will be.
7. Diversify
Only put some of your money into one trade. Spread your trades across different assets to minimize risk.
8. Stay Aware of Fees
Trading platforms can have fees, like the funding rate in perpetual trading. Ensure you're aware of any fees associated with your trades.
9. Have a Clear Strategy
Before you start trading, decide on a strategy. Whether based on technical analysis, fundamental analysis, or other factors, having a plan can help guide your decisions.
10. Stay Safe
Ensure you're using reputable platforms with good security measures. Also, always enable two-factor authentication and other security features to protect your funds.
Perpetual trading has opportunities, but be careful. Knowledge can help, but there's no sure win.
Ready to take your perpetual trading to the next level? Uncover powerful strategies here!
Perpetual trading strategies can be complex, but I'll break down some of the more beginner-friendly approaches to get started:
1. Trend Following
What it is: This strategy involves identifying and following established market trends.
How to do it: Use tools like Moving Averages to determine if a cryptocurrency is in an upward (bull) or downward (bear) trend. Once you've identified a trend, trade in its direction until signs show it might end.
2. Swing Trading
What it is: This involves taking advantage of price "swings" in the market. Instead of holding a position for months, you might hold it for days or weeks.
How to do it: Identify points where the price seems to change direction (support and resistance levels). Buy at the low point (support) and sell at the high (resistance).
3. Scalping
What it is: A strategy where you make many small daily trades to profit from tiny price changes.
How to do it: Pay close attention to the market, make quick trades, and don't aim for huge profits in a single trade. Remember, fees can add up, so be mindful.
4. Breakout Trading
What it is: Trading based on significant price moves out of a defined price range.
How to do it: If the price moves above a resistance level (or below a support level) with high volume, it might continue in that direction. This is when you enter a trade.
5. Fundamental Analysis
What it is: Making trading decisions based on the overall health and news surrounding a particular cryptocurrency or the market as a whole.
How to do it: Stay updated with news. If crypto is about to get a major software update or has significant partnerships in the pipeline, it could impact the price.
6. Risk Management
What it is: Not exactly a "strategy" for making profits, but crucial for protecting them.
How to do it: Always use stop-loss orders to limit potential losses. Only invest what you can afford to lose, and don't use excessive leverage.
Remember that the crypto market can change fast even with these starting strategies. Stay updated and be ready to adapt as you learn.
Here's a beginner-friendly breakdown of common mistakes to avoid in perpetual trading:
1. Overusing Leverage
Mistake: Using too much borrowed money to open larger positions, hoping for bigger gains.
Why Avoid: While leverage can increase profits, it can also increase losses. If the market moves against you, you could lose all you have.
2. Ignoring Fees
Mistake: Overlooking fees like the funding rate or transaction fees.
Why Avoid: These fees can quickly add up, especially if you hold positions for long periods or trade frequently.
3. Failing to Use Stop-Loss
Mistake: Not setting a limit to close a losing trade automatically.
Why Avoid: Without a stop-loss, you risk significant losses if the market takes an unexpected turn.
4. Chasing Losses
Mistake: After a loss, trying to recover immediately by making high-risk trades.
Why Avoid: This can lead to emotional trading and even more significant losses.
5. Ignoring Research
Mistake: Trading based on feelings or hype without understanding the market.
Why Avoid: Informed decisions based on research tend to be more successful in the long run.
6. Overtrading:
Mistake: Making excessive trades in a short period, often as a result of impatience or excitement.
Why Avoid: Overtrading can result in higher fees and expose you to more risk. It's also mentally exhausting.
7. Ignoring the Broader Market:
Mistake: Focusing solely on one asset without considering overall market conditions.
Why to Avoid: The crypto market is interconnected. Major events or trends can impact the entire ecosystem, so it's essential to stay updated.
8. Setting Unrealistic Expectations:
Mistake: Expecting always to profit or become wealthy quickly.
Why Avoid: This can lead to disappointment and rash decisions. It's essential to understand that trading involves both ups and downs.
Perpetual trading can be rewarding, but be careful and informed. Knowing common mistakes helps new traders. Continuously learn and manage risks.
"Ready to master Exolo's platform? Dive in now and start your perpetual trading journey with our step-by-step guide!"
This article section will guide you on how to trade with leverage using the Exolo platform.
1. Setting Up Your Exolo Account
If you haven't already, create an Exolo account. Complete the necessary identity verification's for security and regulatory compliance. Secure your account by enabling two-factor authentication (2FA).
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Navigate to “buy crypto” and take these two steps:
1. Select the cryptocurrency and fiat currency, then confirm the amount
2. Choose your preferred transaction method and payment method.
After the payment is approved, the cryptocurrency you bought will be sent to your account.
3. Navigating to the Futures Section
On the Exolo homepage, hover over "trade" and select " Futures."
4. Choosing the Right Contract
Exolo offers a variety of cryptocurrency contracts. Select the one you're interested in trading from the top left corner.
5. Understanding Leverage
Decide the leverage you want to use. Exolo allows high leverage, but remember: higher leverage increases both potential profits and potential losses. Navigate to the top right of your futures page and choose the leverage.
6. Cross vs. Isolated
Cross Margin (Cross)
Uses all available balances in the account to prevent liquidation.
Riskier, as it can eat up your entire balance in a significant market move.
Isolated Margin (Isolated)
Only uses a specified amount for a particular trade.
Limits potential losses to that set amount, offering more control over risks.
In short, cross margin utilizes the entire balance to back a position, while isolated margin uses only a selected portion.
7. Placing a Trade
Long: If you believe the cryptocurrency price will rise, you can "go long."
Short: If you believe the price will fall, you can "go short."
Determine the price you want to enter the trade and set a stop-loss to limit potential losses.
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8. Monitoring and Closing Your Position:
Monitor your trade on the Exolo platform. You can close your position manually or set a target price at which the system will automatically sell.
while perpetual trading may initially seem daunting to beginners, it's achievable with the correct insights and approach; also, Selecting the right cryptos for perpetual trading is essential.
Remember, the first step is often the most challenging. Proceed with caution, continually educate yourself, and make well-informed decisions.
1.How do funding rates affect my trades?
Paying the Fee: If the funding rate is positive and you're risking the price will go up (long position), you pay a fee. This happens when the contract's price exceeds the actual crypto's price.
Receiving the Fee: If the funding rate is negative and you're risking the price will drop (short position), you get a fee. This occurs when the contract's price is lower than the crypto's actual price.
2.How Do I Choose the Right Leverage?
Leverage increases both potential profits and losses in trading. Here's a condensed guide to selecting the appropriate leverage:
a) Risk Tolerance: Understand how much you're willing to risk. Higher leverage means bigger potential rewards but also more substantial potential losses.
b) Experience Level: Beginners should start with low leverage. As you gain confidence and knowledge, you can consider adjusting.
c) Market Conditions: In volatile markets, lower leverage is often safer. Stable markets might allow for higher leverage, but always be cautious.
d) Position Size: A smaller trade with high leverage may be easier to manage than a large trade with the same leverage.
e) Safety Measures: Use stop-loss orders and monitor your trades to protect against significant losses.
f) Broker's Terms: Understand the policies and fees of your trading platform related to leverage.
3.Can I hold my position forever?
In theory, yes, but funding rates and market conditions might influence your decision to keep or close a position.
4.What's the difference between isolated and cross-margin?
Isolated uses a set amount for a trade, while cross utilizes the entire account balance.
