The Right Way to Use Perpetual Futures

If you’re already trading crypto on the spot market, you’re familiar with the basics—buy low, sell high.

However, by sticking only to spot trading, you might be missing out on opportunities to amplify your profits. Futures trading allows you to leverage small price movements, turning even modest market changes into larger gains, giving you more profit potential without needing additional capital.

In this blog we will take a look at how perpetual futures trading can be used to make bigger profits.

Disclaimer: Futures trading offers higher profit potential but also comes with increased risk, including the possibility of losses greater than your initial investment.

ALSO READ: Crypto Futures Risk Management Strategies Explained 

What Are Perpetual Futures?

Perpetual futures are contracts that let you trade crypto without owning the actual coins. Instead of buying and selling the asset directly (spot trading), you’re betting on its price movement through a contract. Unlike regular futures, these contracts don’t expire, so you can hold them as long as you want.

You can also use leverage, meaning you can trade with more money than you actually have. This amplifies both potential profits and losses, making it a powerful but risky tool compared to spot trading.

Read more about Perpetual Futures here.

Why Choose Perpetual Futures Over Spot Trading?

1. Spot trading doesn’t offer leverage, limiting your profit potential. Perpetual futures, on the other hand, allow you to use leverage to control larger positions with less capital.
2. With perpetual futures, you can profit from both rising and falling markets, unlike spot trading, which only benefits from price increases.

Leverage: The Key to Amplifying Profits

Leverage lets you trade with more money than you actually have, multiplying both potential profits and risks. In perpetual futures, you can control a larger position with a smaller capital investment.

For example, if Bitcoin is $103,110, buying 1 BTC in spot trading requires the full amount. But with 10x leverage, you only need $10,311 to control the same position. If Bitcoin moves up by 1% ($1,031), your profit is $1,031 x 10 = $10,310 instead of just $1,031 in spot trading.

You can read more about Leverage and how it works here

Managing Risk with Perpetual Futures

Leverage can amplify profits, but it also increases risk. A small price movement in the wrong direction can lead to big losses, sometimes even liquidating your position if you don’t manage risk properly. That’s why risk management is crucial when trading perpetual futures.

To protect your capital, traders use tools like:

• Stop Loss: This automatically closes your position if the price moves against you beyond a set limit, preventing excessive losses.
• Take Profit: This locks in profits by closing your trade when a target price is reached, ensuring you don’t miss out on gains.

Using these tools, along with proper position sizing, helps control risk and trade more safely in volatile markets.

How to Choose Perpetual Futures Contracts

Here are some key factors to consider when choosing a contract to trade:

• Market Trends:If the market is bullish, look for contracts tied to assets showing strong upward momentum. Conversely, in a bearish market, select contracts that benefit from price declines. Here are some indicators to refer to
  • Moving Averages (MA): If the price is above the 50-day or 200-day MA, it signals a bullish trend. If below, it’s typically bearish.
  • Relative Strength Index (RSI): An RSI above 70 indicates overbought conditions (possible reversal), while below 30 suggests oversold (potential buy).
  • MACD: When the MACD line crosses above the signal line, it signals a bullish trend; a cross below suggests a bearish trend.

• Underlying Asset’s Volatility: High volatility can be lucrative for experienced traders but risky for others. Assess asset volatility to align with your risk tolerance.
• Your Risk Appetite: Understanding your own tolerance for risk is essential. High leverage amplifies both profits and losses—10x leverage on volatile assets like Ethereum can quickly liquidate your position with a 10% move. New traders should start with lower leverage, while experienced traders should actively manage risk using stop-losses and take-profit orders.

Conclusion

Perpetual futures can be a powerful tool to amplify your trading potential, but it requires careful risk management and strategy. Mudrex enables traders to effectively harness the power of perpetual futures by offering automated trading strategies and built-in risk management tools, such as stop-loss and take-profit features. With Mudrex’s user-friendly platform, you can easily test, manage, and refine your futures strategies, allowing you to amplify your trading potential while minimizing risks.