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          How To Avoid 3 Major Mistakes When Trading Cryptocurrency

          Bidisha Dey by Bidisha Dey
          September 12, 2022
          in Updates
          Cryptocurrency

          Credit: US news money

          Crypto traders love to “ape” and “degenerate” investments in futures markets by employing enormous leverage. But most traders make these three fundamental blunders. Many traders have significant misconceptions about trading bitcoin futures, particularly on derivatives markets outside of traditional finance. The most frequent errors concern fees. The effect of cryptocurrency derivatives instruments. And also the price decoupling of futures markets. Let’s examine three common blunders and myths that traders should steer clear of when dealing in crypto futures.

          Trading and pricing of derivatives differ from spot trading

          Retail traders and seasoned fund managers utilize these instruments to leverage their crypto positions. And the total open interest in futures contracts in the cryptocurrency market already exceeds $25 billion.

          Trading and pricing of derivatives differ from spot trading
          credit: finance monthly

          Contrary to popular belief, futures contracts and other derivatives, people can use frequently to lower risk or expand exposure rather than for irrational gambling. Some distinctions in pricing and trading are frequently overlooked in cryptocurrency derivatives. As a result, traders should take these distinctions into account. While investing in futures markets. 

          Even experienced derivatives investors from traditional assets might make blunders. Therefore it’s critical to comprehend the existing idiosyncrasies before employing leverage. Even though they offer USD rates, the majority of cryptocurrency trading firms do not really employ US money. This is a significant unreported fact that puts derivatives traders at risk. And is one of the problems that they encounter when researching and trading futures markets. Clients don’t really know if the contracts are priced in stablecoin. Because there is a serious lack of transparency in the market. 

          Discounted futures can occasionally be unexpected

          On September 9, spot exchanges like Coinbase and Kraken began trading ETH futures that mature on December 30 for $22.This is 1.3% less than the current price. The distinction results from the possibility of Merge fork coins during the Ethereum Merge. No free coins that Ether holders might receive will give to the derivatives contract’s buyers.

          Since holders of derivatives contracts won’t receive the prize. Airdrops can also result in lower futures prices. Although there are other reasons for a decoupling.  Since each exchange has its own pricing structure and hazards.

          Increased costs and price decoupling should be taken into account

          Increased costs and price decoupling should be taken into account
          Credit: reader’s digest

          Leverage, or the capacity to trade sums greater than the initial deposit. It is the main advantage of futures contracts (collateral or margin). Even though trading costs for derivatives contracts are typically lower than those for spot securities. However, a hypothetical 0.05% fee is nevertheless impose on the $2,000 transaction.

          As a result, the cost of entering and leaving the position once will be $4.00, or 4% of the initial investment. Although it might not seem like much, the cost grows as the turnover rises. Even if traders are aware of the additional expenses and advantages of employing a futures instrument. An unknown component usually only surfaces during erratic market conditions. Separating the derivatives contract from the standard spot.

          Also read: The Worst and The Best Nations for Crypto Taxation

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          CoinzPress is one of the leading cryptocurrency news services that cover the latest crypto-related news. The news includes a technical analysis of a wide range of digital currencies as well as forecasts for those electronic currencies. Here at CoinzPress , we aim to enlighten anyone having an interest in the world of cryptocurrency with significant information that could keep them informed.

          So, in short, we cover a range of announcements related to a variety of Alt-coins, digital coins, and any significant news that could create an impact on the trading world and economy.

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