As a trader, you can make massive gains from the crypto perpetual futures contracts trade. Still, it comes with many risks that are worth knowing before trading. Even though it can be tempting to buy cryptos and reap massive profits, there are few factors that you will need to have in mind.
In the recent past, many exchanges started offering crypto for futures, which were quoted in tether (USDT), used as the standard measure. Even though the change is convenient for most traders, it is a big concern for the traders who are willing to keep long positions for several weeks.
Before you open any trade that offers perpetual futures, the trader should be aware of how they can stop losses. It should be noted that stronger wicks can stop losses. Otherwise, they will end up losing their ability to trade for the lucrative yields.
Assessing the Leverage Leads
Irrespective of the liquidity of the market, the leverage will result in stronger wicks. The moves might not lead to forced liquidation, but it might run an investor’s stop. The possibility of errant wicks is why traders need to avoid carrying future positions for long periods. Futures liquidation uses a price index that comprises several spots to avoid price manipulation. Therefore, the system will only use close positions that have a little margin, and once an index reaches, it stops.
A while ago, ETH faced a $326 low on Coinbase while at the same time, Binance futures were facing a $302 low. Though the change seems small, it forced traders to stop orders. However, there are ways to avoid that by setting a one-stop trigger that marks the price index instead of the last price. The small change will help avoid being liquidated if the futures contracts get decoupled from the index. Unfortunately, not every exchange offers that possibility.
Staking and Liquidity Mining to Get A Better Yield
If you buy cryptos using futures, it won’t allow you to use them for leading or staking unless you are willing to carry out the trader in the long term. Many platforms offer to stake and leading services, which include the top centralized exchanges. Some of the cryptos offer a 30-day contract annual percentage yield, ranging from 7 to 18 percent.
However, investing in decentralized mining pools is another great way to generate income while holding the cryptos. Users should know the areas with inherent risks and those areas that can lead to losses between varying cryptocurrencies’. By opting for perpetual futures, you might not be able to partake in staking. It might also not impact your decision if you want to bet in the short term price changes; it is significant as more time goes by.
Know the Changing Funding Rates
Perpetual contracts are referred to as universe swaps that contain the rate that usually charges for every 8 hours. Funding plays the role of ensuring that there is no risk of exchange imbalances. Even if the buyers and sellers might be interested all the time, the leverage might vary.
When buyers want more leverage, the funding improves, hence the buyers will be the ones paying the fees. The issue remains true under bull run periods since usually there is more demand for longs. Typically, as crypto hikes, so does the perpetual funding rate. This leads to gains after impacting negatively on the gains the buyer ought to get. Those with short-term positions can add up over a few months. But to avoid the shortcoming, one will need to look for margin instead of the futures contracts. For the perpetual futures, investors will need to deposit a margin to access such markets. Besides, some of the exchanges will allow the users to manually pick rates and set the periods for borrowing. This is a better method since it helps avoid any surprise that might occur naturally while carrying out the buying. Even though perpetual trading is a great tool, it has its shortcomings. These include the inability to stake, variable funding rate, and stronger wicks that run to stop losses.