What Is an Example of Crypto Futures Trading?

Here’s the thing about crypto futures: I can use leverage to make my potential wins look impressively large (or my losses, but let’s not dwell on that), hedge away some market risk if I’m feeling cautious, or even short crypto assets just for the fun of it. Plus, I get to enjoy all the deep liquidity and competitive fees that exchanges like to brag about.

There’s no shortage of places to do this—VALR is one, and if I want to sound clever, I can try out a menu of trading strategies to maximize my returns. The basics are simple: open an account at a reputable exchange, prove I’m not a robot, toss in some funds, and I’m ready to go.

But what does this actually look like? In this article, I’ll walk through a sample scenario of a crypto asset futures trade and the steps I’d take to execute this hypothetical deal—because sometimes it helps to see how the gears turn inside the machine.

Understanding Crypto Futures Trading

Crypto futures contracts are a type of derivatives whose value depends on a single or multiple underlying crypto assets (e.g., BTC, ETH, SOL).

In a traditional futures trade, the buyer agrees to purchase contracts at a predetermined price at the date of expiry. On most platforms (including VALR), crypto futures trading is offered in perpetual contracts, a subcategory of futures that do not expire. As they don't have an expiration date, you can hold them for virtually indefinite periods to speculate on cryptocurrencies.

To track the price of the underlying asset as closely as possible, perpetuals use a mechanism called the funding rate. If the funding rate is positive, it means that the futures price is higher than the spot price, requiring buyers (longs) to pay sellers (shorts) the funding amount. In contrast, the funding rate turns negative when the futures price trades at a lower level than the spot price, meaning that it is now up to shorts to pay longs the funding amount.

The main advantage of crypto futures is that you can use leverage to amplify your position size, which could potentially generate higher returns in the case of a winning trade. You can also use these contracts to profit during bear markets with short trades and to hedge against market risks by opening a position in the opposite direction of an existing position. Moreover, you can take advantage of increased liquidity and competitive trading fees compared to the spot market.

On the other hand, the use of leverage significantly increases the risks of liquidations, which could aggravate your potential losses. Due to being derivatives, futures contracts may also come with regulatory risks, especially in jurisdictions where derivatives trading is banned or restricted. Also, while futures prices may differ from the spot price at times, you don't actually own the underlying digital assets when you trade futures.

Example of Futures Trading in Crypto

In what follows, you will see an example of a futures trade in crypto in which we will show you how a trader can open and close a hypothetical position. 

In this section, we will jump right to the trade without detailing the preliminary steps you need to take before you can start trading (for example, picking a trading platform, opening an account, and depositing funds). If you are looking to learn more about these details, we recommend reading this article on the VALR blog along with our perpetuals trading guide.

1. Develop a Trading Strategy

Developing a sound trading strategy should be the first step traders should take to trade crypto futures. It is a systematic methodology with predefined rules and criteria that will assist us in decision-making, which we will follow diligently to achieve optimal results (you can learn more about the best futures trading strategies here).

Suppose we have a balanced risk appetite, so we set the risk/reward ratio at 1:3, meaning that for every $1 we risk, there is a potential $3 reward. To manage our risks, we will use stop-loss (SL) and take-profit (TP) orders. Based on the 1:3 risk/reward ratio, we will set the SL at 1% of the position size and the TP at 3% of the position size for the trades we open.

To amplify our potential gains, we will use 5x leverage as part of a day trading strategy. We will trade the major crypto futures pairs (e.g., ETH/USDT-PERP) on VALR, and we will use technical analysis (TA) to determine potential opportunities and entry points for our trades.

For TA, we will use two moving averages—the 50 simple moving average (SMA) and the 25 SMA—to identify crossovers and execute trades accordingly. If the 25 SMA crosses the 50 SMA and a golden cross forms, we place a long trade expecting a major upward movement. On the other hand, if a death cross forms after the 50 SMA crosses the 25 SMA, we will open a short position to benefit from the potential profits of a downward trend.

It is important to note that we will never risk more than 1% of our total trading budget in a single trade. So, if we have $10,000 in total, we can only open leveraged positions with a maximum of $100 of initial margin.

2. Analyse the Market and Determine an Entry Point

The next step is to analyse the market and determine an entry point for our trade based on the rules and criteria we outlined in our strategy.

As you can see, we have already set up our chart with the 50 SMA and 25 SMA indicators. The 25 SMA is displayed with a green line, and the 50 SMA with a red line

As shown in the above chart, the 25 SMA crosses the 50 SMA, forming a golden cross at the 2,657 USDT level. This is where we enter the trade, setting our stop-loss at 2,630 USDT (-1%) and our take-profit order at 2,736 USDT (+3%).

For this trade, we risk $100 of our capital, which we deposit as initial margin. With 5x leverage, our position size becomes $500.

If we win our trade, we will make $15, minus the trading fee we paid when opening and closing the position, which represents a 15% ROI. On the other hand, a losing trade would only come with a $5 loss (plus trading fees).

3. Execute the Trade

Based on the entry point we determined earlier, we execute the trade using the order form on the right side of the page. We also set stop-loss and take-profit orders at the -1% and +3% levels, respectively, to limit our risks.

If we win the trade, VALR will automatically close our position after the ETH/USDT price reaches 2,736 with a $15 profit (minus fees). In the case of a losing trade, our stop-loss will trigger at 2,630 USDT and the exchange will automatically close the position with a $5 loss (plus fees).

4. Rinse and Repeat

After our first trade, we will repeat Steps 2 and 3 of the above process to identify more opportunities and execute trades accordingly as part of our strategy.

Trade Crypto Futures on VALR

Crypto futures trading can provide multiple benefits to traders—from amplified profits to shorting digital assets and hedging against market risks. An example scenario—such as the one we included in this article—helps you understand how digital asset futures trades work in practice and how you can take advantage of them with a sound strategy.

Are you ready to get started with crypto futures trading?

Risk Disclosure

Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate.

VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).

Futures trading is provided by VALR DAM Pty Ltd as a Juristic Representative of CAEP Asset Managers Pty Ltd (FSP number: 33933) an authorised financial services provider.

Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.