How to create a Cryptocurrency Portfolio with the use of Futures Trading on Exchanges

Building a cryptocurrency portfolio with futures trading is not a casual approach. It is one of the most profitable strategies to grow your investments, but it comes with challenges. Like any investment strategy, futures trading can be complex, especially for beginners. This guide will help you understand futures trading and provide steps to create a successful cryptocurrency portfolio.

What is Futures Trading in Cryptocurrency? 

Futures trading is a contract where two  parties agree to purchase and sell an asset at a certain price and certain date in the future. In  the case of cryptocurrencies, these contracts allow traders to predict price movements without owning the assets. What this means is that if the trader makes a wrong guess, he or she ends up incurring a loss and vice versa. 

Futures trading is especially attractive due to the possibility of high returns. It  also has numerous applications in that it can be used to speculate, hedge or even reinforce a particular stand  in the market. Unlike spot trading, future trading allows you to make a profit even when the market  is falling. 

Why Use Futures Trading? 

Futures trading presents the following advantages over the traditional trading  techniques: 

Leverage: It is possible for traders to move large amounts of assets while using a small capital. As a result, this increases the potential of making high profit in a short period of time. 

Risk  Management: With futures trading, traders can lock in a specific  price for an asset which prevents volatility related to market conditions. By locking in a price, traders can mitigate the risk of sudden market swings, whether the asset's value rises or falls.

Liquidity: Major exchanges offering Futures trading have high liquidity, ensuring traders can easily enter and exit positions easily.

Market Flexibility: With future trading you can make money even when the market is  falling as well as when it is rising. 

Now, beginners should start small, focus on  fundamentals, and then expand their knowledge over time. 

How to Start a Crypto Portfolio with Futures Trading 

Research Important Terms 

Understand the basic terms like margin, leverage, liquidation, and settlement before diving deeper into futures trading. It’s also essential to know the difference between futures trading and spot trading. This knowledge will help you make better decisions and avoid common mistakes. 

Choose a Reliable Exchange 

First of all, you need to select the exchange that  has low charges, is highly secure, and has a smooth interface. To compare the available exchanges and their offers,  refer to this guide on cryptocurrency exchanges. 

Define Your Investment Goals 

There is a  need to set goals before trading futures. Choose whether you want to get quick returns or expand your  portfolio over a period of time. These goals will dictate your trading plan and your risk management will determine how you will approach the trading. 

Start with Demo Account 

It is important to  note that most of the exchanges offer demo accounts through which one can practice futures trading without depositing real  money.

Use Leverage Carefully 

Leverage basically is a tool which can greatly increase your profit as well as the loss. It is advisable  to use it with proper risk management. 

Do a Market Analysis

Regularly monitor market trends and potential opportunities. Use tools like candlestick charts, moving averages, and volume indicators to make data-driven decisions. Stay informed about news and events that might affect cryptocurrency prices and sentiments.

Stick to Your Plan

Irrespective of the market conditions, it's best to stick to your trading plan and strategy. Most traders overcome with greed and fear and this leads to taking unnecessary risks which could cause liquidation. 

Diversify your Futures Portfolio

Ever heard the saying “don't put all your eggs in one basket”? Diversification means investing in different  contracts like Bitcoin, Ethereum, Binance coins etc., to hedge your risks. Investing in multiple asset contracts helps to spread the risks which acts as a hedging mechanism.

The  Role of Exchanges in Futures Trading 

A crypto exchange provides a brokerage platform by which traders can purchase future contracts against crypto assets.  They offer trading tools and services which includes asset trading history  in the form of charts.  These charts show the depth of the market and help traders make informed trading decisions. 

You can build a cryptocurrency portfolio using futures trading, but it requires the right mindset and approach. Start small, learn constantly, and have patience. Futures trading can be a powerful tool to grow your income and portfolio. Use demo accounts to practice and ensure risks are managed carefully. With the right strategies and persistence, you can achieve success in futures trading.