Futures contracts involving cryptocurrencies bind the parties to buy or sell a cryptocurrency at a certain price at a future date. Futures contracts for cryptocurrencies can be used to predict price movements or to protect against them.
It’s crucial to understand how to close a cryptocurrency futures trade after you’ve opened one. Two procedures exist for ending a bitcoin futures trade:
Sell order
An order to sell a cryptocurrency is known as a sell order. You must provide the cryptocurrency, the expiration date, and the quantity of the contract in order to close a cryptocurrency futures trade with a sell order.
A sell order of $30,000 with a December 2023 expiration date can be used to end a trade in Bitcoin futures, for instance, if you initiated it with a buy price of $30,000 and that price.
Buy Order
An order to purchase a cryptocurrency is known as a buy order. You must provide the cryptocurrency, the expiration date, and the quantity of the contract in order to close a cryptocurrency futures trade with a purchase order.
For instance, if you open an Ethereum futures trade with a $2,000 buy price and a July 2023 expiration date, you can close the transaction with a $2,000 buy price and the same expiration date.
When to stop trading cryptocurrency futures
There are numerous justifications for wanting to end a cryptocurrency futures trade. Among the most popular explanations are:
- To make money
- To prevent losses
- To carry out a legal responsibility
When the price of the underlying cryptocurrency reaches your profit target, you should close the trade if you are trading for profit. When the price of the underlying cryptocurrency reaches your acceptable loss threshold, you should close the trade if you are trading for protection.
How to control risk while terminating a trade in bitcoin futures
The moment you close a cryptocurrency futures trade and finally see the consequences of your trade, it can be thrilling. To prevent big losses, it’s crucial to control risk before closing a trade.
Using a limit order to close a cryptocurrency futures deal is one method of risk management. An order to purchase or sell a cryptocurrency at a certain price or higher is known as a limit order.
You could put a limit on the sell order of $35,000 if, for instance, you began a Bitcoin futures transaction with a buy price of $30,000 and wanted to terminate it with a profit of $5,000.
Using a stop-loss order is another strategy for risk management when terminating a cryptocurrency futures trade. An order to sell a cryptocurrency if the price drops below a certain level is known as a stop-loss order.
A stop-loss sell order of $1,500 can be placed if, for instance, you made an Ethereum futures transaction with a buy price of $2,000 and wish to keep your losses to a maximum of $500.
Conclusion
An essential step in the trading process for bitcoin futures is closing a trade. It’s critical to comprehend the various transaction closing methods and how to control risk when doing so.
More advice on completing cryptocurrency futures transactions
- Conduct research To ensure you are making the best choice, do your homework on the market before finalizing a trade.
- Think of your objectives. Before concluding a trade, consider your trading objectives. Do you trade to make money or to reduce your risk exposure?
- Be persistent A trade does not have to be closed right away. Wait until you get additional information if you are unsure what to do.