This article was originally published on c-trade.com.
Perpetual contracts can offer users huge returns and are becoming more and more popular, particularly during periods of heightened volatility in the crypto market.
But in order to see the very best return on your investment, you need to make sure you follow some basic rules. The following list includes our top eight dos and don’ts when it comes to trading perpetual contracts on a derivatives exchange.
Do: Use the “No Expiration Date” Feature to Your Advantage
Although very similar to some traditional futures contracts, what really differentiates perpetual contracts is the fact that they don’t come with an expiration date.
This gives users a major advantage in volatile markets as they can wait for the moment that the market turns in their favour. Standard futures contracts have a predetermined expiration date which automatically closes them regardless of market conditions.
Don’t: Be Afraid to Close the Contract
Taking advantage of the unlimited time perpetual contracts can remain active can be very profitable. But there is a point when it makes financial sense to cash in.
The key is to monitor the market closely and make a sensible decision to complete when conditions are working in your favour. Don’t be greedy – it could well lead to a loss.
Do: Use Stop-Loss & Take-Profit orders
Another way you can minimize losses and maximize gains is to use stop-loss and take-profit orders.
A stop-loss order ensures a perpetual contract is bought – or sold – once it achieves a certain price, while a take-profit order can be put in place to ensure your assets are sold once they reach a predetermined price above the amount they were bought for.
Do: Ensure You Have a Diverse Portfolio
One of the key risk management strategies for any derivatives trader is diversification. A diverse portfolio allows traders to spread their investments more widely and avoids a scenario where a single large investment leads to major losses [LINK TO: 5 Essential Risk Management Strategies for Crypto Derivatives Traders].
Diversification is a solid strategy for perpetual contracts too. Although they don’t have an expiration date and are therefore able to weather a tumultuous market – traders should never stake too much on a single investment.
Don’t: Spend More Than You Can Afford
Another key risk management strategy that translates into the trading of perpetual contracts in the same way it does for many other products is to ensure you don’t risk more than you can afford to lose.
With the option to hold out on an investment for a longer period than you would with a traditional futures contract, there is a temptation to overspend – but don’t.
Instead, follow our next top tip and test out different strategies to grow your investment without risking too much of your initial capital.
Do: Take Advantage of Leverage
Leverage is additional funds an exchange is willing to lend a trader so they can see a greater return on their investment.
Of course, it is important to be aware of how much you are borrowing but trading perpetual contracts with leverage can lead to far greater returns in the long run.
Do: Your Own Research
Perpetual contracts, as with many derivatives products, can be slightly more complicated to understand than traditional crypto currencies when it comes to trading.
Ensure you have done ample research and understand the mechanisms that make these contracts work before you start trading them.
It’s also important to be aware of factors affecting the price of Bitcoin like stock market fluctuation, economic conditions, government policies and, as we are experiencing now, global crises.
Without an in-depth understanding of the products you are investing in the ability to make a profit dwindles.
Don’t: Just Choose Any Exchange That Offers Perpetual Contracts
Although several established exchanges have now begun to include perpetual contracts in their offerings only a derivative-focused exchange really knows how to get you the best from your investment. What’s more, many of these exchanges are vulnerable to technical issues like faulty servers and security problems, leading to leaked user data and cyber-attacks.
Here at C-Trade, our expert team have devised our exchange platform around the smooth, hassle-free exchange of perpetual and other futures contracts. When trading perpetual contracts with us, you can rest assured that we know exactly what we are doing and your investment is being handled safely, securely, and with the expertise you can expect from a dedicated derivatives exchange.
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