Cryptocurrency trading has become a popular approach for people to make money in the financial market. While the volume of digital assets has declined in 2022, the industry is still seeing strong vibrancy, as evidenced by the ongoing deal-making in the space. In this article, we will focus on crypto futures and explain how the process can be automated.
What are cryptocurrency futures?
Ideally, there are two main ways of trading cryptocurrencies. The best-known approach is known as spot trading, which involves buying and selling digital currencies at their present price. For example, if Bitcoin is trading at $30,000, spot trading will involve buying at this price.
The second approach is one that involves derivatives. A derivative is a financial asset that tracks the price of a real asset. For example, when you buy Bitcoin in the spot market, you own the asset in your wallet. But when you buy a Bitcoin derivative, you simply don’t own the real coin. You can’t use it to pay for products and services.
There are several types of derivatives in the cryptocurrency industry. First, there are leveraged tokens, which are products that have in-built leverage in them. A good example of this is a token like XLMUP 4x leverage. In this case, when the XLM token rises by 1%, the token will rise by 4 times.
Second, there are financial derivatives known as options. These are financial assets that allow a trader to buy or sell the underlying asset at a pre-determined level. Like with the stock and commodities market, option holders can decide to exercise them or not before the expiry period. Traders pay a premium in order to buy the option. In most cases, traders use the options market to hedge against their original trades.
What are cryptocurrency futures?
Finally, there are cryptocurrency futures, which are financial assets that allow you to bet on the future of an asset without taking ownership of it. The concept behind the futures market is a relatively easy one and has been around for centuries. If you believe that the price of an asset will rise in the coming week, you can buy a futures contract that is tied to the asset.
There are two main types of futures in the crypto industry. First, there is a futures contract that has an expiry date. These types of futures are usually popular in the commodities market. Second, there are perpetual futures that don’t have an expiry date.
An exchange like Binance provides two types of these futures depending on how the trade is settled. There is the S contract that is settled using stablecoins like USDT and BUSD. Second, there are M futures contracts that are filled in cryptocurrencies. Examples of the most popular futures assets are AVAX-PERP, APE-PERP, and NEAR-PERP.
In the past, spot cryptocurrencies were the most popular asset types in the industry. Today, the volume of these derivatives is much higher than spot.
Crypto futures automation
There are two main approaches to trading cryptocurrency futures. The most popular of these approaches is manual in nature. It involves doing analysis and then executing trades directly.
The second approach involves using cryptocurrency bots. A bot is a piece of software that studies an asset’s chart and then decides whether to buy or sell a financial asset. These bots simply automate the manual process.
For example, if you are a trader who uses the buy the dip strategy, the bot will assess the performance of a cryptocurrency and then execute the trade. The same is true if you are a trader who focuses on using oscillators like the Relative Strength Index (RSI) and the Stochastic Oscillator; you can come up with a bot that will execute that trade.
Automation is an excellent method of trading the spot and futures market. For one, if the bot works well, you don’t have to spend a lot of time watching the market since it will be doing that for you.
Further, the bot does not sleep. As such, it will work for you on a 24-hour basis, which can be a useful way of making money in the crypto market.
There are two main ways of automating your trade. First, you can create your own bot from scratch. While this is a good approach, it requires technical programming skills. It also takes time to build and test the bot. Second, you can use a ready-made bot. After buying, it is always recommended that you test it in a demo account.
Popular types of bots in crypto futures
There are many types of robots in the cryptocurrency futures market. Some of the most popular ones are listed below.
- The grid strategy – It is a bot that creates a grid with a center or a reference line. The bot will then open multiple buy and sell positions inside that grid. This approach is more appropriate in volatile markets.
- Buy the dip bot – This is a bot that uses multiple strategies to identify when an asset’s price has declined sharply. While buying the dip can be a profitable strategy, it is also highly risky.
- Combo bot – This is a bot that seeks to benefit from both rising and falling markets. It combines the grid and dollar-cost averaging (DCA) to achieve maximum returns in the market.
- Dollar-cost averaging bot – This is a bot that seeks to buy crypto in pieces as its prices drop. The goal is not to spend the entire chunk at the same time.
- Scalper bot – This is a bot that aims to open hundreds of trades per day with the goal of making tiny profits.
Trading cryptocurrency futures can be a highly profitable venture. In this article, I have looked at what futures are and how they work. We have also assessed some of the top strategies to use when trading these assets.