How to make money by trading perpetual contracts?

Traders can leverage perpetual contracts to speculate on asset prices without ownership, employing strategies like scalping for quick profits, range trading for stability within defined ranges, trend trading for following price momentum, and arbitrage for exploiting price differences across exchanges.

Dec 16, 2024 at 10:27 am

How to Make Money by Trading Perpetual Contracts

Perpetual contracts are a type of derivative that allows traders to speculate on the future price of an underlying asset without having to take ownership of the asset itself. This makes them a popular instrument for traders who want to profit from price movements in the cryptocurrency market. But they can also be complex and risky. Let's take a look at four technique strategies for making money by trading
perpetual contracts.

Techniques

1. Scalping is a trading strategy that involves making small, frequent profits by taking advantage of small price movements in the market. Scalpers typically enter and exit positions within a few minutes or hours, and they often use technical analysis to identify trading opportunities. For scalping, traders use leverage of 5x - 10x. Scalping requires quick execution, fast reaction, and a deep understanding of order book liquidity and market depth. Pitfalls of scalping are that it requires constant focus and monitoring, and it's not a long-term strategy.

2. Range trading is a trading strategy that involves identifying a range in which an asset's price is likely to move and then trading within that range. Range traders typically use technical analysis to identify support and resistance levels, and they enter and exit positions when the price reaches these levels. Assuming that the current Bitcoin price is $20,000 with support at $19,000 and resistance at $21,000, a range trader may buy Bitcoin when it falls to $19,000 and sell when it rises to $21,000. Range trading is less stressful than scalping and holding. Range traders don't need to constantly watch the charts or worry about managing risk during volatile market conditions.

3. Trend trading is a trading strategy that involves identifying the overall trend of an asset's price and then trading in the direction of that trend. Trend traders typically use technical analysis to identify trend lines and moving averages, and they enter and exit positions when the price breaks through these levels. For example, if the price of Bitcoin is in an uptrend, a trend trader may buy Bitcoin when the price breaks above a moving average, and they may sell Bitcoin when the price breaks below the moving average. Following the trend strategy is to follow market momentum to gain profits. Unlike scalpers who profit from quick price changes, trend traders hold their positions longer to ride the wave of the trending price.

4. Arbitrage is a trading strategy that involves taking advantage of price differences between different exchanges. Arbitrageurs typically buy an asset on one exchange and then sell it on another exchange for a higher price, or they borrow to short on one exchange and buy to cover on another for a price difference. For example, if the price of Bitcoin is $20,000 on Binance and $20,050 on Coinbase, an arbitrageur may buy Bitcoin on Binance and then sell it on Coinbase for a profit of $50. Arbitrage trading usually is conducted by high-frequency trading bots. Arbitrage trading requires a deep understanding of market microstructure. It's highly competitive and relies on fast execution and information flow.