How I Turned $250 into $2000 in 2 Weeks, Trading Futures on Binance!
A Newbie Guide to Trading Crypto Futures on Binance (Part 1)
[Edit] This ended up being a lot lengthier than I expected. If you are new to trading cryptocurrencies and are hoping to start trading Futures on Binance, please try to read as much as possible.
Before we begin, it must be said, that this is a guide for dummies, by a dummy. Until two weeks ago I hadn’t done any futures trades on Binance (or elsewhere). I was getting really frustrated with the sideways movement of the crypto market over the last couple of months and decided it was a good time to learn something new.
[Disclaimer] None of the content here is financial advice, please do your own research before making any investments. I’m also not an expert of any kind and am only sharing my personal experience on the topic.
I’m notoriously afraid of taking risks, and being Sri Lankan was brought up on the philosophy of living within my means (although, I rarely ever do). So, the concept that I could collateralize my assets and take what essentially feels to me like a gambling chance on the price of cryptocurrencies seemed (and still seems) ridiculously irresponsible to me.
I’m so new to all of this, I really have no business writing any sort of guide on the subject, but so many people are asking me for one, and I figured, I’ll just base the entire guide on what I did and hope no one reading this sinks into financial ruin. Fingers crossed.
Before you make the financially prudent thing and click away from the rest of this guide, it must also be said that there are traders who actually know what they’re doing when it comes to trading futures. I on the other hand, mostly just fluked my way into quadrupling my initial investment within a week, and then doubling it the next week.
Although a lot of what I did was just get lucky, I did learn a few things, and I hope my experience might be helpful for anyone who is considering the leap of faith into the world of crypto futures.
So, without further ado, here’s the run-through.
What is Futures Trading?
Not going to lie, had to Google this myself, but here’s the really basic explanation. A futures trade is entering an agreement (or a position) to buy or sell an asset in the future with the expectation that the price will have moved in the predicted direction (up or down) at the said future time.
In practical terms, traders enter a “long position” when they expect the price of an asset to move up, or a “short position” when they expect the price to come down.
Unlike “Spot Trading,” where trading is done by purchasing and selling crypto assets, “Futures Trading” involves trades made on the price of assets.
Setting Up and Funding Your Binance Wallet
The first step towards trading Futures is to sign up for a Binance account and complete the verification process.
Use this referral link to sign up for a Binance wallet if you haven’t already, and enjoy a 20% discount on trading fees, which adds up to quite a bit on the long run. You’re welcome.
It’s a pretty simple process, but here’s a step-by-step guide to signing up and verifying your Binance wallet for anyone who needs it.
The next step is to fund your Futures Wallet. This can be done by following the below instructions and/or following along with the video below.
- Open Binance App
- Navigate to “Wallets” (Bottom of the screen)
- Select “Spot” (Top of the screen)
Ensure you have USDT or BUSD in your “Spot Wallet” - Select “Transfer”
- Pick “Spot Wallet” in the “From” field
Pick “USD(S)-M Futures” in the “To” field - Select “USDT” or “BUSD” in the cryptocurrency field
- Enter the amount you want to trade Futures in the “Amount” field
- Select “Confirm Transfer” (Bottom of the screen)
I recommend starting out with a small amount of capital. $50 or $100 worth of USDT or BUSD is more than enough, to begin with.
Binance Futures Trading
Now, that the simple stuff is out of the way, this is how you can start trading Futures on the Binance mobile app. It can be done on the Binance website as well, but I really prefer the mobile app.
To enter the “Futures” trade screen, click on “Futures” at the bottom of the screen as shown in the below image from the app Home of the Binance mobile app.
Once, the “Futures” trade screen opens up, you’ll be looking at a screen similar to the below image.
There are a few things to look for here. I’ll explain the main options from the top of the screen to the bottom. Spot them on the screen in the image above while you read about them.
USD(S)-M
This option essentially lets you select the type of collateralization you will be using for your Futures position. Be sure to select USD(S)-M if you don’t know what you’re doing.
BTCUSDT (Perpetual)
BTC is the ticker for Bitcoin, and USDT is the USDT trading pair. If you’re using BUSD instead of USDT for trades, you’ll have to select “BTCBUSD (Perpetual).” Perpetual takes away expiration time periods, which allows you to close the trade at a time you like and not upon expiration.
Isolated & Cross (Margin Mode)
Select “Isolated” as your Margin Mode. Selecting “Isolated” ensures that Binance treats each of your positions as separate and independent positions without settling cross balances across positions.
10X (Leverage Adjustment)
Leverage is the amount of borrowing that can be done to fund your position. The higher the leverage, the higher the risk, and obviously on the flip-side, the higher the reward. For starting out, let’s maintain leverage at a maximum of 10X.
Buy & Sell (Long & Short)
If you choose to “Buy,” you are essentially entering a long position and expect the prices to go up. If you choose to “Sell,” you are entering a short position and expect the prices to come down.
Limit & Market
For the purpose of starting out, we will place “Market” orders which means that the trade position is opened at the current market price at the time of clicking “Buy” or “Sell.” With the “Limit” options, you will be able to trigger a trade entry at a price you expect the asset to reach in the future.
Amount (USDT/BUSD)
The amount is the investment you are hoping to make for the position. This ticket size is impacted by the leverage you’ve chosen as well. For example, if you are trading with 10X leverage, a $100 investment amount will only cost $10. As a general rule, for starting out, keep the investment amounts between $10 and $25.
Making a Futures Trade
The last part is the most important of them all, and that is opening a position to make a Futures trade. Double and triple-check the settings and configurations of the trade as shown above to adjust the risk of making the trade.
I’m almost certain there are better ways to do this, but below is the process I follow to make a trade. Use it as a guide, but feel free to improve your trading ability by learning more about the topic.
See video below for a run-through of what we covered so far.
Reading the Charts (Technical Analysis)
Figuring out the direction of the price movement is the fundamental premise of making a “Futures Trade.” In order to understand the price movement, traders engage in what is known as technical analysis, which is essentially reading the price chart.
Technical Analysis or TA is an entire discipline of its own and there are experts who have devoted quite a bit of time and energy into the area. As you might expect, I am not one of those experts.
TA is a really complex form of pattern recognition, and with some practice, reading the charts become less complicated than it seems at the outset.
The first step to reading the charts is accessing the charts, which can be done by clicking on the icon highlighted in the image below from the “Futures” trade screen.
Once the “Chart” button shown above is clicked on, the price chart will open up and will typically look something like the image below.
I highly recommend familiarizing yourself a little bit on the topic of Technical Analysis, but the bare minimum that must be done is to read the chart across different time frames.
The time frame shown in the price chart can be changed by selecting any one of the options in the ribbon, as shown below.
As a general rule, start with the 1D (1 Day) chart, which will provide a pretty accurate representation of the price direction, and work your way towards smaller time frames such as 4H (4 Hour), 1H (1 Hour), and 15m (15 Minutes), which will show the immediate price movement.
See the video below to understand how the charts can be accessed on the Binance Futures platform.
The idea is to try and understand the price movement, and then confirm the conclusion you’ve drawn by checking different time frames. If all the time frames are showing the same price movement, there’s a good chance that you’re assumption is correct.
Paying Attention to the Macro Economy (Fundamentals Analysis)
I should ideally have mentioned Fundamental Analysis before Technical Analysis, but in the case of trading Futures, it sometimes feels like the TA is more important somehow. I might be wrong.
Fundamentals Analysis is basically just paying attention to what is going on in the global economy. For example, if there is a global black swan event and financial markets start bleeding, there’s a more than good chance that Crypto markets will price on the same sentiment.
Fundamentals Analysis is my preferred form of analysis, but these macro events are generally drawn out over a period of time and it’s sometimes difficult to figure out the extent to which a macro event might influence the markets.
Sign up for a bunch of news sites and investment publications to get credible information, ideally ahead of time. As disgraceful as this is to say, I’ve found TikTok to be a great source of information, purely because of how current the platform is and how quickly information flows there. Pick your poison, the name of the game is accurate information on time.
There are three major types of events that I’m looking at right now in the context of their influence on crypto markets. It may help to start there and expand to more.
- World Events
The best example of a world event is the Russia-Ukraine war. The spread of the pandemic is another good example. These events don’t seem financially relevant at first glance, but their impact inevitably is felt in the markets. - Crypto Events
The Ethereum Merge is a good example of a crypto event. Bitcoin Halving Cycle is another good example. These events are specific to crypto and generally impact specific cryptocurrencies. A little understanding of the crypto space is necessary to understand the impact of these events, but they do have dramatic effects on the prices of crypto assets. Bans imposed on crypto and deregulation of crypto in states/countries are also crypto events with a great impact on prices. - Economic Events
Economic events are largely focused on the US as far as crypto goes. The inflation rate of the US and Non-Farm Payroll are examples of economic events. Generally, the crypto markets mirror the S&P 500 and the Dow Jones, but in time, there should be a decoupling of this trend. For now, these events impact crypto markets very similar to how they impact the stock markets.
How I Make Trades (How You Probably Shouldn’t)
Once you’ve set the trade configurations, read the charts, and paid a little attention to what’s going on in the global economy, it’s time to start trading.
By this point, you will have a fair understanding of where prices are headed. You will also have a preference of the specific crypto assets you are hoping to trade.
Select Cryptocurrencies to Trade
If you aren’t familiar with the different cryptocurrencies that are traded on crypto exchanges, it’s best to do some research. If you really don’t want to do any more reading, you’re welcome to try out my recommendations, but don’t blame me if everything goes up in flames.
So, I trade Bitcoin, Ethereum and Binance Coin in that order. My reasoning is simple. Bitcoin has the largest market capitalization in the crypto world. The large market cap lends some stability to Bitcoin. Although it has happened many times, Bitcoin tends to move slower, and is less likely to crash by 30% in an hour. On the flip side, gains are also slower with Bitcoin for the same reason. Bitcoin is also the most receptive to fundamentals and world events. Bitcoin responds first and the crypto market usually follows.
Ethereum is the same as Bitcoin with a smaller market capitalization. Ether tends to move more violently than Bitcoin at times, but also tends to have a lot of attention directed towards it at any time. Specifically, in 2022, there is a lot of buzz about Ethereum because of some developments that are happening on its blockchain. I expect price movements to be somewhat predictable around the specific dates that releases are scheduled for.
Binance Coin, my third pick is the native token of the Binance platform. I’m obviously very confident about Binance and it feels to me like they are best positioned to take advantage of the growth in the crypto industry. Be warned, that the volatility of Binance Coin is much more pronounced than Bitcoin and Ethereum.
If you have no idea what you’re doing, try and stay away from trading Futures. If you can’t stay away, stick to Bitcoin. If that isn’t exciting enough for you, well, go with God.
Setting Investment Size
There are probably far better ways to decide on investment size, but I have a very simple approach. My investments are always $100 with 10X leverage.
My reasoning is that I can’t lose more than $100 on any single trade. My upside is essentially infinite, but my downside is capped at $100. I’m comfortable with this risk exposure.
It must also be said that I started with investments that were sized at $25 each. So, start really small, get used to it, and continue to maintain a healthy risk balance.
Setting Target Profits and Stop Losses
I can’t stress the importance of a stop loss enough. This is the best way to keep your trade positions safe and cut losses before they wipe you out.
To set a stop order, a position must already be opened. The idea is that you will be able to set an automated stop order to minimize the losses or take profits in the position.
By placing a stop order, you can let the trade be open without worrying about incurring large losses.
As a general rule, I set a stop loss on every position I open to hedge the possibility that I was wrong about the position I’ve taken.
To set your stop orders, click on “Stop Profit & Loss” in the trade screen as shown in the image above.
You will then see a dialog box with the below layout.
If you’ve taken a long position, your stop loss will be below the price you entered the trade at. If you’ve taken a short position, the stop loss will be above the price the trade was entered at.
For example, if you went long on Bitcoin at $22000, the stop loss should be set at $21500. If you went short on Ether at $1600, the stop loss should be set at $1700.
Before setting the stop orders, it’s best to study the charts a bit and understand what prices might be key resistances and supports.
Take Profits!
One thing I can tell you with certainty is that on most occasions, prices always retrace and correct. What this means is that if the price is running up or down, there’s going to be a correction where it reverses. Charts never go up in a straight line, it’s always a launch and pull-back sequence.
Taking profits becomes really critical because of this launch and pull-back sequence. Whenever your position reaches a 10% to 20% gain, consider taking profits and opening another position after letting the market cool off.
What matters is now how much money you make, but how much money you get to keep.
In Conclusion
This guide is really not meant to teach you how to be an expert trader. It’s just meant to help you get in and take a look around. Each of the areas I’ve outlined in this guide requires a full deep dive of its own. Once you’ve become familiar with how everything works, start doing research into all the different aspects of trading.
I’ll leave you with a quote I love.
“Trading is the hardest way to make easy money.”
