[00:00] Hey guys, Lance here. In this video, learn how to trade crypto futures. We'll go through the basics of why you'd want to trade crypto futures, what the benefits are and also the risks and how to navigate a futures trading stream to place orders. Timelines for everything are listed in the
[00:16] description below. There are many ways you can go ahead and trade crypto futures. I'm going to be using Binance right here, one of the largest crypto exchanges and they do offer derivatives as you can see so i'm just going to click in to us dollar stablecoin futures i'll explain what those
[00:32] are in a second this is essentially the trading screen if you don't have binance i'll leave a link to them in the description you can sign up for an account go and trade in the spot market or the futures market the spot market is the cash market so that is when you actually go ahead and buy
[00:48] crypto currencies this is the spot market screen for binance what you can see here is the spot market so right here spot market and then you can go and enter your orders and what you'll be doing is actually buying and taking ownership of a cryptocurrency we've got bitcoin us dollar
[01:05] teller right here so if you want to know how to get started with buying cryptos i have other tutorials i'll link them in the description for you but essentially the spot market as you can see here we actually buy the underlying crypto asset i'm going to switch back to the futures
[01:19] market right here are actually trading futures which is a different product than a cryptocurrency itself so certainly a risk warning with futures they are riskier potentially especially if you're
[01:32] using leverage leverage is something that you can use with futures and i'll go over exactly how and why traders would want to trade with some leverage but certainly the risk increases substantially
[01:45] this is definitely not financial advice but just a general overview of how it works so what are the advantages of actually trading futures of cryptocurrencies instead of the underlying asset and just buying and holding well there are some firstly you can actually go short or you can
[02:01] bet that the price will fall and this is something that you can't do when you're simply buying bitcoin for example if you buy it yes you can sell it but you can't sell more than you have well with futures you have two options you can either go long so betting on the price rising
[02:15] or go short and actually bet on the price falling. But you don't require any assets firstly to go ahead and go long or go short. So you can just open a position to bet that the price will fall
[02:27] and that is something that you can't do in the spot market. Other ways that traders will use futures is to hedge their portfolio. So for example, if they have a very large holding of Bitcoin itself and they're a long-term holder, they want to huddle for 10 years,
[02:42] but in the shorter term they do see opportunities to trade around their portfolio and so they may not want to touch their long-term positions but they might use futures and try and trade around and take advantage of those short-term price opportunities and you can do that with futures
[02:59] something that is a little bit harder when actually trading in the spot market. Also the fees are much lower for trading futures than in the spot market you can actually come down here You can see the fee level right here.
[03:11] There are two sets of fees. One is a taker fee and one is a maker fee. The maker fee, you'll be paying 0.02% of the trading fee. And then if you're a taker, you're paying a little bit more at 0.04%. What is a maker and a taker?
[03:24] A maker is someone that actually makes liquidity. In its simplest form, what a maker is, is someone that actually puts their order on the book and doesn't take someone else's order. So we'll go through the order book in a second. But right here, there are two types of people.
[03:37] There are people that take other people's orders. That is, if I look at these orders right here, these are people that are out on the book trying to sell some Bitcoin right here. And if I take their order, so if I go long and take their price, I'm a taker.
[03:51] If so, I, for example, want to buy some Bitcoin or go long the future specifically, then I can come down here and actually make a price. I won't trade right now, but I can make a price. And so I get those maker fees instead of the taker fees.
[04:05] Of course, I have to wait until someone actually trades with me, but potentially my fees will be lower if I am a maker compared to a taker. To put the fee level in context right here, paying 0.02 or 0.04, both of these are lower than the spot trading fees at Binance, which is 0.075.
[04:22] So you do have lower fees when trading futures compared to the spot market. There are disadvantages, of course, with everything with futures. definitely if you go long so if you bet on the price rising you want to go long you do have to
[04:34] pay actually a funding fee because of the way futures works and I'll explain that in a second but essentially if you go long you will be paying shorts to go long so you're actually paying to go long a little bit you see the funding fee here it's a very very small amount but it is still
[04:50] there and that's something that you don't have with just holding bitcoin you don't pay to hold it But with futures, you do have to pay a funding fee if you're going long. Conversely, if you are selling short, you actually get this funding fee.
[05:03] So longs pay shorts. Also, we're going to talk about leverage and you can actually leverage up your trades. You can come up to the top right here, press 1X. Yes, you can get a ridiculous amount of leverage.
[05:16] So you can actually be trading, let's just say, five times what you actually have on account. leverage increases risk substantially and is never recommended for anyone other than people that have been in the market a very long time again this cannot be financial advice for you i personally
[05:32] would never use leverage it's not needed for me especially with a volatile market such as bitcoin or any other crypto but one of the disadvantages for sure is that with leverage you can really get
[05:44] on the wrong side of the trade and basically just blow up your account so that's something that we will talk about later on in the video when we come to some sample trades potentially limiting your risk and understanding having a good risk profile
[05:56] when you trade. Also a disadvantage of futures is that it's not good to use futures for the long term. Futures really are for short-term trades trading around your portfolio if you're a long-term hodler it would obviously be better just to go
[06:09] and hold the asset because you wouldn't be paying these funding fees so no disadvantage of futures they have their uses and it's mostly in my opinion for short-term trading around your portfolio where you may think the price is going one way and you can
[06:22] benefit from that day trade. Specifically with Binance we can go through what all of these things mean and it will be fairly similar no matter which platform that you're using the information that traders need is really the same so depending if you're using Binance or something else you will
[06:36] get a lot of the same information. Firstly we have the price in the market this is as you can see Bitcoin against US dollar Tether this is the market that we'll be trading so we have Bitcoin valued in US dollar tether and remember this is a synthetic contract that we'll be trading simply
[06:52] enabling us to either go long or short not hold the underlying so we have the price in the market that obviously matches this one one for one we also have the mark price for the futures contract you can see the latest mark price is the price used for P&L and margin calculations so this is
[07:09] important if you are trading on margin and you're trading on leverage this will be the price that is used to calculate all of those leverage positions and of course if you're getting down to a low amount of collateral on account then you may face some margin calls because essentially
[07:24] the way that you trade futures is putting some collateral on account and then going and trading usually larger positions than that. But you can also just trade with 1x leverage which is no leverage of course and so this will become less relevant we now know what the funding is and the countdown this happens every eight hours and so
[07:43] what will happen every eight hours is that this funding amount will be locked and that is what the longs pay the shorts for the next eight hours so that will be the premium that you will pay to go long the future as we go along you can see the 24 hour change just some price information here
[07:59] not massively relevant but on the right hand side we have the order book right here so we have buyers or bidders down here and then we have sellers or people that want to go short here you can see a huge amount of movement in the price right here but if we just zoom in what we can see
[08:14] down here is that these prices are lower than the prices up at the top people that want to sell at a certain price can post their order on the book up here and people that want to go long or buy
[08:27] at a low price can post their bids right down here. When the price moves and matches, that is what this price is in here, so that will be an actual trade that's gone through. You can, of course, if you want to get your trade done straight away,
[08:40] put in a price that is, let's say, around here, and then that will go through straight away. But remember, you will be a taker because you're taking other people's orders. If you want to be a maker, simply choose a price that is below the mid price,
[08:52] your order will come right down here, and then you'll wait for a seller to come and fill your order, hopefully at that lower price. But if you are going long, any orders down here will have to wait for someone else to trade at your price. If you're going short, any orders up here will have to wait for someone actually going long
[09:09] to take the opposite of your trade. I'll go through all of these orders and order types later on in the video, so it will become clearer then. Right down here, you can see trades. These are the actual trades that are going on and that have gone through.
[09:21] we can see the price, the amount and the time that they all went through. If you have any open orders on the system and we'll go through putting those in they will be right down here so you can see your positions, the symbol obviously the currency pair that you're trading, the size of your position
[09:36] and all the latest prices as well including your profit and loss specifically in Binance anyway and most other futures trading venues. You can actually deposit a stable coin or basically a version of
[09:48] US dollar in this case US dollar tether or you can deposit Bitcoin and of course we're trading Bitcoin US dollar tether so that makes sense you can either deposit Bitcoin or USDT and that will
[10:00] be used to fund your futures positions if we actually change up here so we can go and let's see if we can trade in the Ethereum market so we have Ethereum against the US dollar instead of Bitcoin you can see that we now can deposit both USDT and Ethereum if we like it depends which
[10:16] market that you want to trade we'll go back to bitcoin right here and we can go for the bitcoin u.s dollar perpetual future what is a perpetual future then a perpetual future is simply a synthetic contract that tracks the price of a currency pair which is in this case bitcoin
[10:35] and usdt it is minus perpetual because the futures contract has no expiry date in the financial world A lot of futures contracts do have an expiry date because they are for commodities like corn or wheat.
[10:48] And so that contract between commodity brokers and traders has to be fulfilled at some point. But in this case, it's really just letting us trade the value of this currency pair. And perpetual means that there's no expiry date.
[11:02] So you don't have to worry about an expiry date. You can open your position and run it for as long as you like. Next, we can come to leverage. And like I said, leverage is extremely risky. and leveraging up your account also leverages up the amount of risk that you're taking and
[11:17] can basically blow up your entire account. But using leverage, you can see on the top right hand corner, we are at 1x leverage which is obviously no leverage. So if you have $1,000 on account, you'll be able to trade open positions that are worth $1,000.
[11:29] If you go to 5x or 10x, obviously that just means you can trade seven times the value of the collateral that you have on account. can deposit either USET or BTC like I said. Why would you want to use leverage? Well leverage
[11:44] is something that occurs in currency markets in general, not crypto currency markets but the normal currency market people use leverage because the daily change between two currencies is extremely small. A currency pair like US dollar and pound sterling may only change 0.05% in a day
[12:03] and so if you don't have a large amount of cash actually traded it will be impossible to actually make any gains from that trading. With cryptocurrencies that can move 10 or more percent in a day, leverage becomes extremely risky. But as an example, let's say you have $1,000 of USDT
[12:20] on account as collateral, and you open a position that is $1,000. So you open a position that is worth $1,000 of Bitcoin, and you go long. But the trading is against you, and Bitcoin
[12:32] moves down 20%. What's going to happen to your position? Well, you're going to sell out and you're going to lose $200. You put $1,000 in, the price of Bitcoin went down 20%, 20% in $1,000. 1x leverage, which is no leverage, obviously is $200. You sell out at a loss and you lose $200.
[12:49] However, if you have $200 and you choose 5x leverage, that means that with your $200 USD on account, you can open a position worth $1,000. You open that same trade and you go long $1,000
[13:02] dollars worth of Bitcoin and the same thing happens the Bitcoin price falls 20% 20% of a thousand is 200 you have $200 on account so with five times leverage you've literally wiped out
[13:14] your entire portfolio on the flip side of course if you're using leverage and it goes up let's say you're using 1x leverage you put a thousand dollars in and it goes up 20% you make 200 bucks if you're using five times leverage so your $200 position opens a thousand dollar position it goes
[13:30] up 20%, again you make $200, but compared to your initial investment, you've literally doubled your money. That is how leverage works. It amplifies the upside and also the downside a lot, and potentially you could wipe out
[13:43] your entire portfolio if you're using leverage in the trade news against you. Something else to be aware of on Binance and many other futures trading platforms as well is USDS futures versus coin futures.
[13:55] USPS futures simply means that you can put US dollar stable coins on account for your collateral. Coin futures means that you can put the coin on account as collateral to fund your trades.
[14:07] To trade futures then you can come over to the right hand side and we actually have a lot of different options that we can do. The first one is for you to go long or short. So which way are you betting that the price will move? Right here you can see it's an option that you can choose afterwards.
[14:22] afterwards so you can set up all of your trade parameters and then only choose whether you want to buy or sell, go long or go short. Let's try and become a maker of liquidity then and we can put an order on the book so right here you
[14:35] can see the price $33,519 what you can do is click these prices and it will update the price right here which is quite a quick way of getting an actual price. I'm going to try and go long but I don't want to pay these high prices I
[14:49] I want to get a lower price right here so I'm going to click right here and then this updates for me or you can just press last here as well that will fill in the last current price but it's always going to be way closer to the actual price so I'm just going to amend this right here and
[15:02] choose 33 500 now you can see that my price right here 33 500 is below the current market price so that means my trade will not go through my order is going to be placed on the book somewhere down here It actually quite a long way away About away from the trade right here
[15:21] But that's fine. I can put that order in. Now I have to choose what side. So how much BTC do I want to trade or go long? So I can choose this. This slider bar right here is telling me how much of my collateral I'm using.
[15:33] So I do have some USDT on account and I can use a portion of that, which does make things easier or you can just go right here and then put in an amount like this so i've got 0.5 of bitcoin
[15:45] or you can just choose 0.05 btc and it will tell you what the cost is right here so this is how much collateral you need on account to actually go and trade or just use 50 my order then is going to
[15:57] be coming onto the order book down here i can now choose just to go long this is a limit order by the way so i'm clicking on limit i can choose my price i can choose the amount and then i can just go long the order what will happen is that my order will come down here onto the order book
[16:14] it will not have gone through yet because i've got a limit order on and my price as you can see is below the current market price so i will not trade right now but my order my position will be here and it will be waiting for a seller to actually come and match me it's the exact opposite for
[16:30] sell of course but with a sell if my limit price is 33 500 obviously i would go through because people right now are actually bidding $33,600 and if I'm a seller my price is $33,500 I'll obviously
[16:44] go through and trade around this central price I could of course amend this so I can amend this price to $33,650 like this so now my price is way above the market I'll have to wait for someone to
[16:56] come in and actually go long and have the opposite of my trade I can just simply go and press sell short that order will work and when it's through it'll be in my positions right here for me any open orders that haven't traded yet will be right here in your open orders. You can also trade a
[17:11] market order this feature so you can switch over to market and you can see that the price disappears. With a market order of course you don't choose the price that you pay you just choose the amount that you trade. So again we can use the slider bar I can choose the amount of collateral that I have
[17:26] to go and trade BTC and I can either go long or short but I cannot choose the price that I trade what will happen is that whatever price that is available for me to have at the time that I press the order that is the price I will trade at. Market orders are
[17:41] used when people want to trade very quickly in and out of a position for example if a trade is moving against you and you want to get out quickly you might want to choose a market order but usually limit orders are suggested because you can choose the price and this means there's less potential of
[17:55] just getting a bad trade. Next up I want to discuss putting a take profit on there and a stop loss on there so essentially what we can do when we enter the trade is actually create a bracket right now the price of BTC is around
[18:08] 33,500 and you can see that happening on the chart right here well when you enter trades with futures a lot of traders will set a level above and below the trade as a take profit and a stop loss this essentially mitigates any risk and
[18:23] lets you know exactly what your risk position is before you actually enter into the trade. What's great with Binance futures is you can actually just click this and then set that when you set your order. So then we can choose our limit order here and I'm going to put
[18:38] in a price of 33,500. So again, below the price and I want to choose around half of my collateral. What I can now do is set a take profit price. So a take profit price would be if I enter a long position at 33,500. Obviously a take profit would mean that the price would be above my entry. That's
[18:55] if I'm going long of course, I can choose any amount that I want. I can come onto the chart right here and say here is my open position, so 33,500 is right here and I want to take
[19:07] profit around this level at 34,500 for example. So take profit right here, 34,500. That means that if I get in at 33,500 and the price moves up a thousand, that is when the system will
[19:21] actually sell my position and close out my position for a profit. More importantly I would suggest is the stop loss price. This will stop losses if the trade moves against you and it's really important when trading futures because it tells us
[19:34] exactly what our risk position is. So once more let's say I open a position at 33,500 what is my stop loss? I can actually set this at any price that I want so just as an example you can do 32,500 meaning that if the price
[19:48] falls by a thousand then obviously the system will just sell my position at loss and stop any further losses later on in the video i will discuss ways that you can set your stop loss and also some risk
[20:00] management we can use some technical indicators to actually show us where we should place our stop loss so we can use that together with this option right here and actually manage our risk keeping on
[20:12] the order type so we can actually come to a stop limit or a stock market order so i'm going to click right here and you can see stop limit and stop market as you know a market order is an order where you don't choose the price that you trade at and a limit order is when you do choose the price
[20:27] that you pay they are both similar orders i'll click on stop limit to show you the example so a stop limit is essentially a price where you tell the system that you want to enter an order so rather than limit order where you're telling the system i want to do something at a certain
[20:42] price you are entering your order on the system and that is there for you with a stop limit you actually don't enter an order onto the system but you only do it when a certain price is marked onto
[20:54] the order book you can actually choose this as mark or last last price would be the last traded price and the mark price is the price that you can see up here as you can see it is slightly different the mark price does not match the last traded price automatically so you can either
[21:10] choose the last traded price or the mark price it's up to you but what we're doing now is actually telling the system only when price let's say we're going long only when the price gets to 34,000 do
[21:22] I want to enter a long position. Why do you want to do this? Traders need to stop orders to enter into positions that limit orders otherwise can't fulfill. Let's say you're a buyer with a limit order if I put my limit order as 34,000 of course I'm telling the system that I'm willing to pay
[21:39] $34,000 to go long. The price currently is $33,600 and so what the system will do is actually just go ahead and trade my order straight away. It will get me probably a better price than my limit order because the actual price is trading below it but it will definitely
[21:54] trade for me because my price is above the current price. With a stop limit that isn't the case. You can tell the system only when the price hits $34,000 do I want to enter
[22:06] an order into the system. What price is that? You can actually choose whatever you want. You can choose exactly the same as the mark price. You can actually enter an order above. Remember, this is a limit order. So again, if your limit order is 35 and the stock price is 34, what
[22:22] happens is the system says, hey, the price is 34. You told me that you want to buy and go long at this price and your limit is 35. I'm going to go ahead and go long everything as long as it's under your limit price of 35.
[22:35] You will probably be trading around 34, so you'll get a better deal than your limit. The limit price, of course, is just the upper amount that you're willing to pay in terms of the price, and you may get a better deal than that You can of course put in for example 33 So let say the price actually goes to 34 and the system at 34 will put in a limit order for you at 33 You not going to trade right now because your limit is 33 and the price in the market is 34 so you too cheap
[23:02] Why else would you want to do this? Well a lot of traders will actually use stop limits with breakouts. So they will come to the chart and they will possibly see areas where the chart may break out, some important levels, and they don't want to enter a trade until it gets to a certain level where they may want to trade that breakout. So they can use a stop limit order and actually not put those orders into the system trade away, but they're only triggered when their stock price is triggered.
[23:27] stock market of course this means that we don't choose the price that we pay so we can put that in here let's say the stock price is 34 000 we will enter a market order and remember we don't choose the price so when the price gets to 34 and let's say we want to go long right here the system
[23:42] will enter that trade for us so we can put let's say half of our collateral up we can put some take profit and stop losses in that we want but we're telling the system only when the price gets for 34 do I want to go long of course now the price is 33.6 so why wouldn't you just want to
[23:59] go long at a cheaper price well again it's used for breakouts a lot of traders will say I'm not sure it's going to break out only when it does break out of a trend do I then want to go long and they don't want to wait for that so they will put these stop limit or stop market orders in
[24:14] another type of order that you may want to use is a trailing stop order a trailing stop will follow your trade positively but it will not flow your trade if the price is against you. So again I'm
[24:26] just going to use the example of going long. If you go long at a certain price let's say 33 600 you can say I want to stop loss around five percent away. What will happen then is a stop
[24:38] loss will be put in at five percent underneath your position. That will be an order in the system that says if I am losing five percent then sell out and stop any further losses. If the price moves down this will not move it will not keep 5% away on the downside it will stay exactly where
[24:55] it is and it can be triggered 5% away from the activation price that you went in at this can be 36,000 for example so if the price is 36,000 moving down that 5% will be 5% away but it won't
[25:08] keep moving down conversely to the upside it will do so let's say the price is actually moving up this will essentially trail your price and be 5% away all of the time to the upside.
[25:20] If the price starts moving back down again, this trading stop will not move. So to the downside on your trade, it won't move and it will trail to the upside. So potentially you could lock in profits if the price moves up a long way and then starts moving down again.
[25:34] It will basically lock in a profit for you. If you go short, of course, it will be the complete opposite way. So if the price moves down, it will follow because that is you winning if you go short. And if the price keeps moving up again, then it will obviously stop where it is and potentially trade out.
[25:50] Now that we know all the order types that we can use when trading, we can actually come to entering a trade. And with futures, you may want to look at your risk management before entering into your trade. One very common technique that traders will use to enter a stop loss position is something called the ATR.
[26:06] The ATR is an indicator. I'm going to come up to technical indicators right here and I'm going to search for ATR, which is known as average true range. I'm going to click on this. Now what we have below is the ATR. The ATR essentially tells us how much is the biggest move that can happen in the asset that we're trading in the time period that we're looking at.
[26:27] So right now on my screen, you can see I'm looking at the one hour chart. I can change this and the ATR will change. The ATR is going to give us the biggest probable move of that asset within the time period. So at the moment, what it's telling me is that Bitcoin against the authority tether,
[26:42] the largest possible move in one hour would be around $421. If I now change this to the 15 minute chart, what you should see is the ATR will reduce. Now the biggest move within 15 minutes is about $200.
[26:57] Of course the price can move more given more time. If I reduce the time further, so I'll come down to a one minute chart, the price can't really move too much within one minute. So you can see the ATR is around $50.
[27:10] This is actually really important in terms of risk management. The longer timeframe that you're trading, the higher probability that the price can move or fluctuate a larger amount if you're trading very short timescales like one minute
[27:24] the price isn't going to move much. If you want to limit your risk then you may want to choose trading shorter timescales because the amount the price can move is smaller and so potentially you
[27:36] can start trading with a little bit of a lower risk. Let's go back to the one hour chart then and you can see the ATR change the highest probable move within one hour is around $400. dollars. It's also important to understand how much of your portfolio or your collateral that
[27:51] you should trade at any given time. Most traders would suggest that around 2% of your portfolio should be at risk. Of course, you don't want to trade the whole lot at once and have all of your position traded all of the time. But we can come to a lot size calculator, cashback forex,
[28:07] so you can see the currency pair that we're trading is Bitcoin USD and the deposit currency, so that's our collateral let's say we will have deposited US dollar tether as that US dollar stable coin. Let's say also that we want to go long so we want to enter a position at around
[28:23] 33 at around 33 500 to make it easy so our open price is 33 500 and our stop loss price will be already in our stop loss because maybe we can choose the ATR as our stop loss telling us that
[28:37] the highest probable move within one hour is around $450. There are other ways to set stop losses, of course. You can look at different levels in the chart, areas of support and resistance.
[28:50] I have many other tutorials on how to look for support and resistance. I'll leave all of them linked in the description for you. But just as a guide to show you how, we can put our stop loss in then at $450 away from our entry.
[29:02] So our stop loss would be 33050, so that's 33,050. So that's our open price minus our stop loss right here. And we have $10,000 on account for our collateral.
[29:16] We only want to risk 2% of our portfolio per trade. We can calculate this now. What this tells us essentially is the trade size that we can execute. To have a balance of $10,000 and a stop loss of $450,
[29:32] bucks to risk two percent we're obviously risking 200 bucks how do we know how many units we can trade well it tells us right here we can trade 0.44 of a bitcoin and that will only risk us two percent of our portfolio with our stock loss at 450 so we can come back right here we can then
[29:49] go onto our trade so we know exactly how many we can trade right now so we can go long at 33 500 and we know we can trade 0.44. With this risk management strategy then,
[30:01] you can really use this on any type of trading strategy that you want. I do have many other trading strategy videos that take you through technical analysis and also some common methods that traders will use to enter into trades and get trading ideas.
[30:14] I'll link all of those in the description for you so you can learn more about those if you wish. If you don't have a Binance account yet, I will leave that link in the description if you want to go ahead and trade futures. do subscribe for daily helpful crypto content
[30:26] and I'll see you in the next one