Best way to trade futures

In this article, I will show you how to trade futures in a professional way. You need to have a professional approach to trading; otherwise, your confidence and performance will be poor. When you open a trade, you must immediately set your stop-loss and profit target. I do not recommend doing it manually after your trade has been triggered. Before you enter a trade, you can and should set a stop-loss and profit target.

Because I want to have multiple active orders at the same time without capital allocation, I only use “stop-limit” orders to enter all of my trades.

How to open a position with a stop-limit order

Stop-limit order is different from the classic limit order. The main difference is that if you use a limit order, your capital will be allocated immidiately and you will see your order in order book. Stop-limit order uses a trigger to place your limit order to orderbook. There is no capital required until the stop-limit order is triggered. That means you can place 100 stop-limit orders (100 trades) for different altcoins and there will be no need to allocate your money in this moment. This is of course very good.

Here is an example of what a stop-limit order looks like. Let’s say I want to open a long position on Bitcoin with 10,000 dollars. My entry price will be 15,500 USDT, my profit target will be 16,000 USDT, and my stop loss will be 15,250 USDT. I want to allocate my capital when the price reaches 15,650 USDT. So my stop-limit order will be triggered at 15,650 USDT. My risk-to-reward ratio is clearly 1:2. Risk-to-reward refers to the difference between a possible loss and a possible gain. In this trade, I can earn two times more money than I can possibly lose.

Let’s take a look at all fields:

1. STOP PRICE: At this point, my entry limit order will be triggered and my money will be allocated. (15,650 USDT)
2. PRICE: This is my entry price. At this level my limit order will be placed. (15,500 USDT)
3. SIZE: Amount of USDT that I want to put into this trade (10,000 USDT)
4. TP (TARGET PROFIT): Trigger for the “TP PRICE” field. The “TP PRICE” is set after “TP” is triggered. This order should be between your entry price and your profit target. I used the 15.850 USDT level. In other words, if “TP” is reached, then “TP PRICE” is executed.
5. TP PRICE (TARGET PROFIT PRICE): My profit target (16.000 USDT). You can choose between a limit order and a market order. I recommend using a limit order.
6. SL (STOP LOSS): My stop loss order (15,250 USDT). Again, you can choose between a market and a limit order. Stop-loss orders must always be market orders. You don’t want to risk anything by placing a limit order, because this order doesn’t have to be filled, and you can get liquidated!
7. SL PRICE (STOP LOSS PRICE): I have chosen a market order, so I want the best possible price to get out of this trade.
8. EXIT PNL: My estimated potential profit is 322.50 USDT (automatic calculations)
9. STOP PNL: My estimated potential loss is 161.25 USDT (automatic calculations)

All I have to do now is click on OPEN LONG and all my orders are set. I can go to sleep or go away from the computer, and this trade will do its job.

How to open a position with a limit order

Opening a position with a limit order is preferred over a market order. You will get your desired price and pay a much lower fee because you are not chasing the market with a market order. You will become a market maker, and market makers are valuable, which is why the fees are lower.

Here is an example of what a limit order looks like. Let’s say I want to open a long position on Bitcoin with 10,000 dollars. My entry price will be 16,000 USDT, my profit target will be 16.250 USDT, and my stop loss will be 15,750 USDT. My risk-to-reward is clearly 1:1. Risk to reward refers to the difference between a possible loss and a possible gain.

Let’s take a look at all fields:

1. PRICE: My entry price (16,000 USDT)
2. SIZE: Amount of USDT that I want to put into this trade (10,000 USDT)
3. TP (TARGET PROFIT): Trigger for the “TP PRICE” field. The “TP PRICE” is set after “TP” is triggered. This order should be between your entry price and your profit target. I used the 16.125 USDT level. In other words, if “TP” is reached, then “TP PRICE” is executed.
4. TP PRICE (TARGET PROFIT PRICE): My profit target (16.250 USDT). You can choose between a limit order and a market order. I recommend using a limit order.
5. SL (STOP LOSS): My stop loss order (15,750 USDT). Again, you can choose between a market and a limit order. Stop-loss orders must always be market orders. You don’t want to risk anything by placing a limit order, because this order doesn’t have to be filled, and you can get liquidated!
6. SL PRICE (STOP LOSS PRICE): I have chosen a market order, so I want the best possible price to get out of this trade.
7. EXIT PNL: My estimated potential profit is 156.25 USDT (automatic calculations)
8. STOP PNL: My estimated potential loss is 156.25 USDT (automatic calculations)

All I have to do now is click on OPEN LONG and all my orders are set. I can go to sleep or go away from the computer, and this trade will do its job. I know how much I can lose and how much I can earn. Absolutely no stress. If you are stressed, then your risk is too high. Lower your risk. Did you know that the recommended risk per trade is a maximum of 2%?

Market orders

Market orders are good if you trade breakouts or if you are an investor and you want to buy an asset immediately without any delays. The fees on market orders are higher than on limit orders.

Here’s an example of a breakout trade you can make with a market order because a limit order can get stuck in the order book and not be filled.

Stop-market orders

This order is great for breakout trades. Basically, you can check out the picture above. The only difference between a market order and a stop-marker order is that you will set a trigger to execute a market order. You don’t need to sit in front of your computer to enter a breakout trade. You just set your stop-market order, and the trade will automatically trigger when you wish. For breakout, I strongly advise using this order rather than a traditional market order.

Post-only orders

A post-only order is a limit order. But there is a risk with a standard limit order.

Let’s say the current price of Bitcoin is 20,000 USDT and you want to sell it at 21,000 USDT. So you will set a sell limit order at 21,000 USDT. But what if you accidentally type 2,100 USDT? Then the classic limit order will be filled immediately for the best available price, and you will accidentally sell your bitcoin for a different price than you wanted to. In this case, the post-only order is great because it will prevent you from accidents like this. The order must be placed in the orderbook to become a successful post-only order. So 20,001 USDT will be possible, but 19,999 USDT will not.

I recommend using post-only orders instead of limit orders; it will save you money many times.

Trailing stop

A trailing stop is a stop loss that moves automatically if the current price moves in your favor. For example, if you open a long position on Bitcoin and the price is going up, then your stop loss is moving up as well, and you will secure your profits automatically. This technique can be useful for bots or algorithmic trading. Of course, you can use it with your manual trading strategies. I do not use this type of stop-loss.

Position mode on Binance

You can choose between one-way mode and hedge mode. I use hedge mode because you can open a hedge position on your trades. It’s an advanced technique that I recommend using. You can basically open the long and short positions simultaneously.

If you are for some reason in a bad position and you don’t want to take any more risk, you can open a hedge position in the opposite direction, and no more losses will be possible. You can exit the hedge position whenever you want, for example, at the next strong support and take a breather from your trades.

What is the difference between the “mark” price and the “last” price of the futures contracts?

“Last” price is the current price of the futures contract. But it can be different from a spot price For example, spot price of BTCUSDT is 20845, but simultenaously the price of the futures BTCUSDTPERP is 20846. To avoid manipulation, there is a “mark” price. Mark price is calculated based on spot markets.

Futures contracts can be less liquid, and you can get stopped out of the position with a long-wick candle. That’s why the default value for the stop loss is the “mark” price.

Margin mode: isolated vs cross

There are two common ways to use margin in a trading account: cross-margin involves margin that is shared between open positions; isolated margin, on the other hand, is margin assigned to a single position that is restricted from being shared.

Cross-margin mode is generally much more dangerous. With the isolated margin mode, you know where your liquidation price is. With a cross mode, your liquidation price can drastically increase or decrease if you have opened 2 or more positions.

If you know what you are doing, use cross. If you don’t know, then you are putting yourself at a huge risk because you can liquidate your entire futures account without knowing why. I use cross.

Leverage

Leverage is a tool that allows you to borrow money from an exchange to increase your buying or selling power. For example, you can open a 10,000 USDT position with only 1,000 USDT if you choose 10x leverage. This is an extremely risky business, and you know the rules. You should not risk more than 2% of your funds per trade.

But leverage doesn’t have to be bad. Let’s say you want to open a long position on Bitcoin and take advantage of micromoves that happen on the 1-minute chart. Currently, BUSD futures contracts have 0% maker fees. You want to profit when BTC rises by 0.2%, and you want to lose when BTC falls by 0.2%. Well, you can use 10x leverage and still stick to the 2% rule.

Also, there is another good thing about leverage. If you open a long position and you are already in a profit, you can set a break-even stop loss. In this case, you will not lose any money on that specific trade. So you can increase your leverage for this position and use your funds on something else, because higher leverage requires a lower margin.

Binance Trading Fees: Maker vs. Taker

A maker is someone who establishes prices by adding limit orders to order books. A taker is someone who takes the best available price from the order book. You will become a maker only with limit orders You will become a taker only with market orders. As you can see, limit orders are a better choice.

If I transfer my BNB holding to my futures wallet, then I get a discount. If you trade frequently, then it’s a good thing.

What exactly is an order book?

In the orderbook, we can see asks and bids. Asks and bids are limit orders. You can see that someone is willing to buy some Bitcoin contracts at 16530.1 USDT (asks). On the other side, someone is willing to sell Bitcoin contracts at 16530.2 (bids).

There are basically zero spreads at this moment because the difference between asks and bids is pretty much zero. At the bottom, you can see all the trades that happened on this specific Bitcoin futures contract. If you place a limit order at 16530.1 USDT, you will get into this order book, and everyone will be able to see your order. If you execute a market order, then you will become a taker, and you will take the last best available order from different traders. Orderbook is a great tool, and you can spot a huge buying or selling order from whales.

Time in Force (TIF) for your orders

The default option is set to GTC for your limit and stop-limit orders. But you can change it if you want.

Your limit order will remain in the orderbook with the GTC option until it is fully filled.If, for example, only half of your order is filled, the remaining half will be held until you cancel it manually.

If you don’t want to wait for the remaining contracts to be filled, then you can switch to IOC or FOK.

If you are a whale or have a lot of money, then it can be greatly useful for you.

This is the end of the tutorial. If things are not clear to you, no worries. You will learn everything you need by exercising. You can set up test orders with only 10 USDT. I recommend testing this on a 1-minute chart with a small amount of money. I wish you massive profits and fun during your trades! Tolberti.