Should you trade crypto futures or crypto options… should you trade both types of crypto derivatives? We are going to answer these questions in this new article, and in addition, we are going to bring you the best tips to make the most out of crypto derivatives.
What are crypto futures?
Crypto futures are essential bets you make on the price direction of a specific cryptocurrency, but without buying the actual asset. You can use leverage to increase your position size, but keep in mind that the more leverage you use, the higher the risk of liquidation, which means that you will lose your entire position/investment.
When you trade crypto futures, you’re obliged to buy/sell, this is why you hear about massive crypto liquidations whenever the market soars or takes a huge dip. You can go long – which means betting on the prices going up – or you can go short – which is betting on the prices going down.
What are crypto options?
Crypto options bring you the right to buy or sell a specific underlying asset at a determined strike price within a predetermined timeline. They are different from futures in the sense that you don’t have an obligation to sell, you’re paying for the right to buy and sell within your desired timeline, which can be 1 day, 1 week, 1 month, 6 months, etc. You can buy options on platforms like Bitlevex and Binance.
This is why it’s important to see how much BTC and crypto options are expiring at the end of the month, quarter or semester – and the percentage of put and call options – to see if the price is likely to go up or down. Since whales and players can manipulate the market in order to hit their desired strike price.
Should you trade crypto futures or options?
To make it easy for you to decide what type of derivative will suit you the best, we will analyze the pros and cons of each. After that, you will be able to choose the perfect crypto derivative for you, so you can start trading as soon as possible.
Crypto futures pros and cons
Futures are easier to close since you are not attached to a specific timeline. Hence, they’re more versatile, especially if you want to operate on small timeframes. For example, if you want to trade the areas of confluence, then it’s better to use futures since you can close your position at any time you like, even if it’s a 3-minute trade with high leverage.
However, its great strength is also a weakness. Futures can be riskier than options, especially when you leverage your positions. Therefore, before you venture into trading futures, you should learn all about Technical Analysis, and of course, keep your positions small until you have a proven strategy.
Crypto options pros and cons
Crypto options bring you the right to sell or buy thanks to call and put options. In this sense, they’re safer than futures, since you don’t have the obligation to buy or sell. They’re less riskier because you can attach to a specific timeline, and if you don’t use leverage, then you will find yourself in a better position.
Nonetheless, crypto options are better suited for a longer timeframe, for example, 1+ month. Therefore, they’re less versatile, since you can use them for purposes such as taking advantage of the areas of confluence to long/short, which is something you can definitively do with crypto futures.
Best tips for capital management in crypto derivatives
Now that you know the pros and cons of crypto options and futures, it’s time to bring you practical tips for capital management. This way, you will be able to grow your capital like a professional.
Learn Technical Analysis
Technical Analysis (TA) will give you the power to read the charts, and hence, make informed predictions about the price movement of a specific cryptocurrency or digital asset. In addition, especially if you want to trade options in a macro timeframe, you should definitely equip your skills with Fundamental Analysis.
Choose a specific timeframe
It’s better to become a master of a specific timeframe, especially if you are going to trade futures. This way, you will learn to spot patterns, confluences and other critical factors that will determine the success of your trading journey, be it by using futures or options.
Always take profits and cut losses early
It’s a good reminder to always be ready to take profits, and of course, cut losses early, before they go from a mere -2% to a gigantic -40%. Always protect your capital, and evidently, aim to make it grow. Trading is a great way to do it, but treat it carefully, so you can actually make money in the long run.
