View source for First Futures Trade Setup Checklist

== First Futures Trade Setup Checklist ==

Welcome to using [[Futures contract]]s alongside your existing [[Spot market]] holdings. For beginners, the goal is not aggressive trading, but learning how to protect or slightly enhance your existing positions. This guide provides a practical checklist focused on safety, understanding your tools, and setting clear limits before placing your very first trade. The main takeaway is: start small, use low leverage, and prioritize learning over profit on your initial attempts.

== Step 1: Know Your Assets and Platform ==

Before entering the world of leveraged products, ensure you are comfortable with the basics of both your long-term holdings and the trading platform itself.

*   **Review Spot Holdings:** Understand exactly what you own in your [[Spot market]] account. If you hold 1.0 BTC, you know your base asset. This is crucial for calculating how much protection you need.
*   **Understand Futures Types:** Familiarize yourself with the specific type of contract you are using, such as perpetual futures, which are common. Review the [[Basics of Perpetual Futures]] to understand concepts like the [[Funding Rate]].
*   **Platform Navigation:** Practice navigating the exchange interface. Locate where you set orders, view your margin, and, most importantly, where you can quickly close a position or set a [[Revisiting Stop Loss Placement]]. If you are unsure, consult [https://cryptofutures.trading/index.php?title=Essential_tools_for_crypto_futures_traders Essential tools for crypto futures traders].
*   **Margin and Fees:** Review the exchange’s documentation on [[Understanding Initial Margin Requirements]] and the [[Fee Structures in Futures Trading]]. Fees and funding rates can significantly impact small trades if ignored.

== Step 2: Define Your Hedging Strategy (Partial Protection) ==

For a beginner combining spot assets with futures, the safest first approach is partial hedging—using futures to offset only *some* of the risk in your spot portfolio. This allows you to participate in market movements while limiting downside protection.

*   **Determine Spot Value:** Calculate the current dollar value of the asset you wish to protect. Example: If you hold 0.5 ETH, and ETH is $3,000, your spot value is $1,500.
*   **Choose Leverage Conservatively:** Never use high leverage for hedging. For your first trades, consider using 2x or 3x maximum, or even 1x if possible, by sizing your futures contract appropriately. High leverage dramatically increases the [[The Danger of Overleverage]].
*   **Calculate Hedge Ratio:** A partial hedge means you aren't trying to cover 100% of your spot position.
    *   If you hold 1 BTC spot, and you open a short [[Futures contract]] equivalent to 0.3 BTC, you have a 30% hedge ratio. If the price drops, 30% of your spot loss is offset by the futures gain.
    *   This approach allows you to benefit if the market moves up while limiting the damage if it moves down, aligning with [[Spot Portfolio Risk Reduction Tactics]].

== Step 3: Setting Safety Parameters ==

Risk management must be defined before the order is placed. Do not rely on emotional decisions during volatility.

1.  **Set Stop Loss:** Always define your maximum acceptable loss for the futures position. This order automatically closes your trade if the market moves against you. This is a cornerstone of [[Using Stop Loss Orders Effectively]].
2.  **Define Take Profit:** Decide what profit level justifies closing the hedge or taking profit on a directional trade.
3.  **Review Contract Details:** Check the [[Futures Expiration Dates Overview]] if you are trading futures contracts that expire, rather than perpetuals. For perpetuals, monitor the [[Managing Funding Rate Costs]] to ensure ongoing holding costs do not erode profits.
4.  **Sizing and Exposure:** Ensure the total notional value of your futures trade, even with leverage, does not expose you to unacceptable losses. Review the concept of [[Calculating Maximum Position Size]].

== Step 4: Using Indicators for Timing (With Caution) ==

Technical indicators help provide context, but they are not crystal balls. Use them only to confirm a trend or identify potential entry/exit zones, never as the sole reason to trade. For initial timing, focus on confluence—when multiple indicators suggest the same thing.

=== Relative Strength Index (RSI) ===

The [[RSI]] measures the speed and change of price movements.

*   **Overbought/Oversold Context:** Readings above 70 suggest an asset might be overbought (potential reversal down), and below 30 suggests oversold (potential reversal up).
*   **Beginner Caveat:** In strong trends, RSI can stay overbought or oversold for long periods. Use it primarily to gauge momentum exhaustion, not as a direct buy/sell signal. Review [[RSI Overbought Levels Caveats]] and consider how RSI relates to your [[Spot Entry Timing with Technicals]].

=== Moving Average Convergence Divergence (MACD) ===

The [[MACD]] helps identify momentum shifts by comparing two moving averages.

*   **Crossovers:** Look for the MACD line crossing above the signal line (bullish momentum) or below it (bearish momentum).
*   **Histogram:** The histogram shows the distance between the two lines; growing bars indicate increasing momentum in that direction. Be aware that the MACD is a lagging indicator, meaning it confirms a move already in progress. Review [[MACD in Futures Trading]].

=== Bollinger Bands ===

[[Bollinger Bands]] consist of a middle moving average and two outer bands representing volatility envelopes.

*   **Volatility Context:** When the bands contract (squeeze), volatility is low, often preceding a large move. When the price touches or breaks the outer bands, it suggests the price is statistically far from its recent average.
*   **Warning:** A touch of the upper band does not automatically mean "sell," nor does a lower band touch mean "buy." It signals high volatility, which requires confirmation from other tools or fundamental analysis.

== Practical Sizing and Risk Example ==

Let us assume you hold 1 BTC in your spot account and wish to hedge against a potential 10% drop over the next week. You decide to use a 2x leverage short futures position covering 25% of your spot holding (0.25 BTC notional value).

Current BTC Price: $50,000.

Target Hedge Size: 0.25 BTC Short Position.

If you use 2x leverage, your required margin commitment is half the notional value ($50,000 * 0.25 / 2 = $12,500 notional commitment requires $6,250 margin).

Scenario: Price drops 10% to $45,000.

{| class="wikitable"
! Position !! Initial Value ($) !! Final Value ($) !! P/L ($)
|-
| Spot Holding (1 BTC) || 50,000 || 45,000 || -5,000
|-
| Futures Hedge (0.25 BTC Short @ 2x) || Short Value: 12,500 || Short Value: 11,250 || +1,250
|}

In this scenario, the futures gain ($1,250) offsets a small fraction of the spot loss ($5,000). This demonstrates partial hedging. If you had chosen [[Spot Selling Versus Futures Shorting]] instead of hedging, you would have sold the spot asset entirely, avoiding the loss but missing the recovery. This example highlights the trade-off inherent in [[Basis Risk in Futures Hedging]]. Always review your [[Risk-Reward Ratios in Crypto Futures]].

== Psychological Pitfalls to Avoid ==

The mechanics of futures trading are simple; the psychology is difficult. Beginners often fall into traps that destroy capital quickly.

*   **Fear of Missing Out (FOMO):** Do not chase trades that have already made a significant move. If you see a massive pump, resist the urge to jump in with high leverage. Wait for a pullback or a confirmed consolidation.
*   **Revenge Trading:** If your first small hedge results in a small loss due to poor timing or [[Slippage Impact on Small Trades]], do not immediately open a larger, riskier trade to "win it back." This is a primary driver of account liquidation.
*   **Overleverage:** Stick to your conservative leverage cap (e.g., 3x max for hedging). Leverage magnifies both gains and losses. A small price move against a 50x position can lead to immediate liquidation, regardless of your long-term belief in the asset. Review [[Setting Conservative Leverage Caps]].
*   **Ignoring Exits:** Always have a plan for exiting a profitable trade before entering. Holding too long can turn a gain into a loss, especially if you are unaware of [[Futures Exit Strategy Basics]].

Remember that successful trading involves disciplined execution. For further reading on platform safety and tools, check out [https://cryptofutures.trading/index.php?title=O_Que_S%C3%A3o_Altcoin_Futures_e_Como_Eles_Funcionam%3F O Que São Altcoin Futures e Como Eles Funcionam?] and ensure you understand the [[Platform Feature Essential for Safety]] tools available to you. The core principle remains: use futures contracts primarily for risk mitigation when starting out, as outlined in [https://cryptofutures.trading/index.php?title=How_to_Use_Futures_Contracts_for_Risk_Mitigation How to Use Futures Contracts for Risk Mitigation].

== See also (on this site) ==
* [[Spot Holdings Versus Futures Positions]]
* [[Balancing Spot Assets with Simple Hedges]]
* [[Understanding Initial Margin Requirements]]
* [[Setting Conservative Leverage Caps]]
* [[Using Stop Loss Orders Effectively]]
* [[Partial Hedging for Spot Protection]]
* [[Calculating Maximum Position Size]]
* [[Spot Portfolio Risk Reduction Tactics]]
* [[Managing Funding Rate Costs]]
* [[Fee Structures in Futures Trading]]
* [[Slippage Impact on Small Trades]]
* [[RSI Overbought Levels Caveats]]
* [[Spot Entry Timing with Technicals]]
* [[Spot Selling Versus Futures Shorting]]
* [[The Danger of Overleverage]]

== Recommended articles ==
* [https://cryptofutures.trading/index.php?title=2024_Crypto_Futures_Trading%3A_A_Beginner%27s_Guide_to_Trading_Psychology 2024 Crypto Futures Trading: A Beginner's Guide to Trading Psychology]
* [https://cryptofutures.trading/index.php?title=BTC%2FUSDT_Futures_Trading_Analysis_%E2%80%93_January_12%2C_2025 BTC/USDT Futures Trading Analysis – January 12, 2025]
* [https://cryptofutures.trading/index.php?title=How_to_Use_Risk-Reward_Ratios_in_Crypto_Futures How to Use Risk-Reward Ratios in Crypto Futures]
* [https://cryptofutures.trading/index.php?title=Cobertura_de_Riesgo_con_Crypto_Futures%3A_Protege_tu_Cartera_de_la_Volatilidad Cobertura de Riesgo con Crypto Futures: Protege tu Cartera de la Volatilidad]
* [https://cryptofutures.trading/index.php?title=MACD_in_Futures_Trading MACD in Futures Trading]

[[Category:Crypto Spot & Futures Basics]]

== Recommended Futures Trading Platforms ==
{| class="wikitable"
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|-
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|-
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|-
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|-
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|-
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|}
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