The golden rule of crypto futures trading is knowing that Bitcoin is king and that many coins if not all move in its direction. When Bitcoin is rising many coins will rise too. When it’s falling, many coins will fall too, and not just fall but deeper than Bitcoin.
Market crashes happen quickly and sharply. And when #BTC☀ crashes many other coins quickly follow suit catching many traders who are using leverage unawares leading to devastating losses. Those trading futures are the biggest losers as they are using mainly high leverage and without proper loss mitigation plans, they get liquidated.
The core goal when trading futures is not so much to make profits but to ensure that you do not lose your capital. Every smart and experienced trader will tell you this.
To avoid being liquidated when trading futures I learnt this the hard way.
But because the market is not anyone’s grandmother and sometimes bad things happen when you enter a trade that quickly moves against you, it is recommended from personal experience that;
1. You add funds into your futures account to protect your asset.
Hopefully in a correction, the market will bounce back or the trend will reverse and you will be profitable.
2. You could also reduce your position by selling some of your assets.
Depending on the trend could be a quarter or half your position or more. This reduces your position size, improves your margin ratio, pushes your liquidation price further and protects you from potential liquidation. The earlier you reduce your position the better for preventing liquidation in an extreme sharp drop. You will take in a loss here, but having the tact to do it early enough will prevent bigger losses. Hopefully, the trend could reverse so well that you end up being very profitable.
3. Close the position early enough in extreme markets.
You will take in a loss here but at least you will still have some of your capital rather than lose it all.
4. Open an opposing position
You can also open an opposite position to profit on the movement. Speed and tact is needed here. Make sure to open one with a lesser margin then the losing position so that your borrowed funds on the first position is reduced. This will improve your liquidation price pushing you further away from it. If you close up your hedge position before the reversal of the losing trend, you will have been profitable on the hedge position and therefore will improve your margin ratio for your initial losing position.
This method is very effective when a position is well supported since you have available margin to open an opposing position.
If the trend reverses, you end up being profitable.
5. Protect your position
This is the most important of them all and should be followed at all times. Don’t have all your money in a futures trade. Have some left to protect you from liquidation.
Use low margin to protect your position. And when you decide to use high margins, make sure your positions are even better protected.
This post contains the personal experiences and opinions of the author. It is intended for guidance purposes only and should not be taken as professional advice. Please consult a certified professional when in need.
