3 major mistakes to avoid when trading crypto futures and options
Novice traders are usually drawn to futures and options markets due to the promise of high returns. These traders watch influencers post incredible gains, and at the same time, the multiple advertisements from derivatives exchanges that offer 100x leverage are at times irresistible for most.
Although traders can effectively increase gains with recurring derivatives contracts, a few mistakes can quickly turn the dream of outsized gains into nightmares and an empty account. Even experienced investors in traditional markets fall victim to issues particular t cryptocurrency markets.
Cryptocurrency derivatives function similarly to traditional markets because buyers and sellers enter into contracts dependent on an underlying asset. The contract cannot be transferred across different exchanges, nor can it be withdrawn.
Most exchanges offer options contracts priced in Bitcoin (BTC) and Ether (ETH), so the gains or losses will vary according to the asset’s price fluctuations. Options contracts also offer the right to acquire and sell at a later date for a predetermined price. This gives traders the ability to build leverage and hedging strategies.
Let’s investigate three common errors to avoid when trading futures and options.
The first issue traders face when trading cryptocurrency derivatives is called convexity. In this situation, the margin deposit changes its value as the underlying asset’s price oscillates. As Bitcoin’s price increases, the investor’s margin rises in U.S. dollar terms, allowing additional leverage.
The issue emerges when the opposite movement occurs and BTC price collapses; consequently, the users’ deposited margin decreases in U.S. dollar terms. Traders often get too excited when trading futures contracts,
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