How to Increase Crypto Profits with Futures
We open a series of articles on unconventional methods of earning profits with cryptocurrencies using our functionality.
In this article we will teach you 3 things:
- What Futures are
- The Advantages of Trading on Futures Exchanges
- How to Set up Your 3Commas Bots to Trade Futures — We will lead you step-by-step through the process of setting up the bots to connecting them to your preferred exchange.
What are Futures?
A Future is an agreement or contract for the purchase or sale of an asset for a pre-set price, at the conclusion of the contract, which is a pre-set time in the future. At the conclusion of the contract, the parties are obliged to fulfill their conditions regardless of the market price.
What are The Advantages of Trading on Futures Exchanges?
Futures Exchanges Primarily Provide for:
1. Leverage Trading — Trading with amounts significantly exceeding your own.
2. Shorting — Speculating on the decline in the price of an asset
What is Leverage?
Leveraged trading, also known as Margin trading or trading on Margin, is a system that allows the trader to open positions significantly larger than he has the capital for. The trader only needs to invest a certain percentage of the position.
- “Leverage” usually refers to the ratio between the position value and the investment needed.
- “Required Margin” is the percentage of the position required to open the trade.
While leverage trading requires less capital, which can be a major advantage for many traders, it also comes with a loss risk. As one can gain much more than his initial investment, losses can occur on the same scale. It is important to keep track of open positions and apply stop-loss and other loss-reduction strategies to prevent large scale losses
Most cryptocurrency exchanges do not allow leverage or margin trading. However, specialized Futures exchanges that trade contracts, are opened to leverage.
Let’s look at Leverage Trading using an Example
You just closed a successful transaction and you received $100 profit from it. If you traded this trade with a leverage of 1:25, you would have earned $2,500 from the same trade, having the exact same strategy. Thus, if you have a profitable strategy, trading with leverage will help you significantly increase your capital without investing more of your own funds.
At the same time, you also increase the risk of losing a deposit if the price goes against your forecast. So if you have 0.1 BTC and buy 100,000 contracts (the leverage will be X100) and the rate drops by 1%, you will lose everything that was on your account (0.1 BTC). With a leverage of 10, the negative deviation will be 10%. Bear in mind that liquidation will occur even earlier on the downside. There are commissions, financing of a borrowed position, etc. that have to be paid out of your deposit.
Currently, leverage trading is available on a large number of exchanges. The most famous of them are BitMex, Binance Futures, Deribit and Bitfinex. Each platform has its own unique features.
For example, Binance Futures offers a maximum leverage of x125 for the BTC/USDT contract. BitMex has the largest trading volumes, an average of $2.5 billion per day. This competition between exchanges makes it complicated to manipulate the trading rate on the Binance Futures exchange.
What does it mean to Short?
Shorting — Trading for a lower price. The trading position in the terminal is called Short.
Consider an example for the Bitmex or Bybit exchanges where profits are recorded only in BTC.
You have 1 BTC. The price is now $10,000.
- You open a SHORT position for $10,000 for 10,000 contracts, provided that 1 contract = $1. Thus, you sign an agreement that no matter what the price, at any time (before expiration, if the contract is not perpetual), the buyer must buy 1 BTC from you, at the price at the time of opening contracts (and we opened a position at $10,000 for 1 BTC). At the same time, that 1 BTC that was in your exchange wallet, “locks” and remains pledged so that in case of Margin Call you will be charged.
- The price falls by 50% to $5,000 for 1 BTC. You close your position of 10,000 SHORT contracts (sell 1 BTC, for $10,000). From your initially “locked” BTC, 1 BTC is given to the buyer. In return, the buyer gives you 2 BTC ($5,000 x 2 = $10,000).
- Your SHORT position is closed.
The Result: The price fell by 50%, BTC in your account increased by 100%. There was 1 BTC, it became 2 BTC. The dollar equivalent of your account grew by 0%. There was 1 BTC at $10,000, it went to 2 BTC at $5,000.
Thus, a successful Short trade increased your BTC and the dollar equivalent remains unchanged. If you trade on the Binance Futures exchange, you only take profit in dollars. Therefore, in our example, the dollar equivalent of your account would grow by 50%.
And what if we used Leverage in our Example?
The results would be as follows:
- The price is $10,000; we open a Short position for 20,000 contracts having 1 BTC (Leverage x2).
- The price gets down to $5,000; we close our Short for 20,000 contracts.
We began with 1 BTC ($10,000) + 1 BTC Leveraged ($10,000) and opened a SHORT position for 20,000 contracts.
The price fell by 50%. It was $10,000 it got down to $5,000.
The BTC in your account grew by 200%. We closed the SHORT position of 20,000 contracts and we bought 4 BTC for $5,000. We borrowed 1 BTC and paid 1 BTC which resulted in 4 BTC in the account when the contract closed. In dollars it was 1 x 10,000 which became 4 x 5,000 = +100%.
The Benefits of Futures for Miners
In addition to a speculative goal, futures can be used by miners to hedge risks.
For example, a miner plans to mine 10 bitcoins within a month and sell them for $7,000 each, but due to the high volatility of the market, the price of bitcoin may change downward. To protect himself from a strong change in the exchange rate, the miner opens a short position and finds himself in a win-win situation since the value of the portfolio will not change:
- If the BTC rate falls, the miner loses because he has mined bitcoins, but wins BTC on futures due to a short position.
- If the BTC rate grows, the miner loses BTC on futures due to a short position but wins because he has mined bitcoins.
Why 3Commas Bots are useful when Trading with Leverage
If you have your own personalized profit strategy or a third-party profit strategy, you can not only automate it using 3Commas bots but you can also earn a lot more on it by taking advantage of leverage.
How Do You get Trading Strategies?
- Your Personalized Strategy — You can make your personalized strategy using technical indicators or any other tools in Trading View and automate trading of this strategy in 3Commas (how to do that is described in this article). To trade with leverage with your bot you have to connect your 3Commas account to one of the available Futures exchanges (Binance Futures, Bybit, Bitmex). Once an appropriate exchange is successfully connected, the Bot settings will activate your leverage functions.
2. Third-Party, Ready-Made Strategy — You can also automate trading with third-party signals and connect to the Futures exchange to use Leverage. The most popular ready-made signals with our customers are the free Crypto Screener signals from Trading View. How to configure them is written in this article.
We also have a Market place with signals of traders. You can select a profitable signal and automate it, also with leverage.
To learn other types of signals that are available — read here. You can connect any of them.
Step-By-Step Instructions on How to Automate Strategies with Bots and Trade with Leverage
Open an account on Binance Futures. This is done in three simple steps:
- Log in to your Binance account
- Go to the Futures tab in the upper left panel
- In the lower right corner, click on the Open now button. Done.
How to Profit with Futures Trading
From the Futures trading platform, on the lower right half of the screen, above the Buy and Sell trading utility, there is a Transfer button, click it.
In the window that appears, enter the amount of USDT that you want to transfer from the exchange wallet to the Futures wallet. Transfer into the Futures exchange is only available for BNB or USDT. Therefore, to replenish your futures funds, you need BNB or USDT on the exchange account.
By the way, through the same window, you can withdraw money from a futures wallet to an exchange wallet by clicking the round reverse button between wallets.
Now you have funds in your futures account. To begin using 3Commas you need to provide access to your account via API.
- Go to your Binance account> Settings> Manage API.
- In the tab that appears, enter your chosen name for the key and click “Create”. Confirm by creating a code from 2FA and enter it.
- You will get an email in which you need to confirm the creation of a new API key by clicking on the “Confirm new API key” button.
- Next, go to the API management page. Here we need restriction editing, an API key, and a secret key.
- Click “Edit restrictions” and put a tick in front of the “Enable trading” and “Enable Futures” items. The rest of the items, as well as the restriction of access by IP, you can enable as desired.
- Copy the API key and secret key. Go to 3Commas in the “My Exchanges” section. In the “Exchange” field, select Binance Futures, come up with a name for your key (preferably one that you immediately understand it is your key to Binance Futures), insert the API key and secret key in the appropriate fields and click “Connect an exchange”.
Congratulations! You created the Binance Futures API key and are one step closer to a more advanced and secure Futures trading experience.
Next, we want to create a bot for futures trading. To do this, go to the “Bots” tab on the side panel and select “Advanced” to create a bot with a more flexible trading strategy.
In the “Main settings”, enter a name for your bot. In the “Exchange” field, select the name of the API key created in the previous paragraph. As for the type of bot, leave it as “Simple”.
In the next step, select a trading pair. So far, two trading pairs are available on Binance Features: BTC / USDT and ETH / USDT.
Paired to BTC, the maximum leverage is x125, and ETH is “total” x50.
Short or Long. There are two options: our bot will short (sell and buy cheaper) or spend (buy and sell more expensive).
“Profit currency” cannot be changed, since all calculations on Binance Futures occur in USDT.
“Base order size” is the amount we will place in our first order. The value can be set in BTC / ETH, USDT or % of the deposit.
“Safety order size” is the amount by which insurance orders will be placed after the opening of the transaction for averaging in the event of a price drop.
There are two types of Start orders:
- Execution by Market (aka Market)
- Putting in the Order book and waiting for the “needed” price (aka Limit).
“Leverage type” or leverage is the coefficient by which the exchange multiplies the client’s bid. It must be remembered that the greater the leverage, the greater the risk of losing your money, but also the greater the reward.
In the “Deal start condition” section, you select the strategy by which transactions will be opened (your personalized or third-party — we wrote about this above).
Take profit — What percentage of profit the bot will fix at the selected price. Trailing allows you to get maximum profit on unplanned price dynamics.
Use the Trailing tool and then if the price goes higher than you planned, your transaction will close at a price close to the maximum.
In the “Stop Loss” field, enter the amount of% of the deposit that we would like to keep.
In the “Stop Loss” field, enter the amount of % of the deposit that you would like to keep.
In the “Stop Loss action” field, you can choose between closing a deal and closing a deal with a bot-stop. “Stop-Loss timeout” is needed to protect against squeezes, because it often happens that you decide to short up, find a great entry point, set a stop and everything seems to be fine, but one random squeeze knocks your stop in the wrong direction, closing the deal, and the price is BTC begins to decline. Whatever this is, you can set a timeout that checks after a specified time whether it is worth closing your order at the stop or not.
Block “Safety orders” are needed to average the position.
You can read more about safety orders here, but we suggest that you shouldn’t average too much. In some situations, it is better to frequently re-evaluate the market conditions and trends.
The “Advanced Settings” block is needed to introduce several small adjustments.
The “Do not start a deal if the daily volume is less than” field is needed for trading low-liquidity altcoins. On Binance Futures, the trading volume per day in one pair may be larger than on some exchanges per week.
The minimum and maximum opening prices are needed for the bot to trade in a given range and not to shorten the bottom.
The “Deal start delay” can be used to distinguish a squeeze from a strong rise/fall without a pullback.
In the “Cool down between deals” sets the time that must elapse between the opening of a new transaction.
“Open deals and stop” allows you to better control the bot after opening a given number of transactions. It is important to remember that open, but not yet completed transactions, are also recorded.
After we configured our bot, we need to double-check the stops and whether all the parameters are specified correctly. After that, click on the “Create Bot” button in the right block.
If everything is done correctly, then you will see a window offering to launch your bot.
All information about the bot can be viewed in the section, Bots > My Bots. There, you can disable the bot, view detailed information, statistics, etc.
Remember, trading with leverage has more risks than spot trading, but there may be more rewards.