Want to get started as a crypto derivatives trader? Read this first

Crypto derivates have been under scrutiny recently, with Binance closing down its futures platform to Australians last month and perpetual futures pioneer BitMEX being ordered in August to pay US$100 million for illegally operating a crypto trading platform.

Excessive leverage has been blamed for the wild volatility in the crypto space, and FTX and Binance in July responded to the criticism by reducing the allowable leverage available to customers to just 20x. (For those not familiar with perpetual futures trading, that would enable customers to open a $2000 position with just $100. But they’d lose that collateral if the trade moved against them by slightly less than five per cent).

Still, there’s no question crypto futures offerings remain popular with crypto traders, with decentralised exchange dYdX’s token being one of the best-performing cryptos since its airdrop early last month.

To learn more, Stockhead recently chatted with Dave Haslop, founder of the Gold Coast-based Crypto Den, which next month will begin another six-week livestreamed course to teach beginners the basics of crypto futures trading.

Stockhead: So you got started leverage trading on BitMEX, right? How did it go at first? How long did it take before you were consistently profitable?

Halsop: Yes, that’s correct. It took a bit of getting used to at first, mainly because the UI [user interface] wasn’t exactly the best but after a few days I was OK. The technical analysis or trade plan doesn’t change regardless of which platform is being used so I did OK from the beginning. As always, you win some and lose some but as long as you win more than you lose you’re profitable.

Stockhead: Do you keep a diary of all your trades? I’ve heard people recommend that.

Halsop: Yes, I use an Excel spreadsheet. I highly recommend keeping track of trades as it will identify any weaknesses you may have as a trader so you know what you need to work on.

Stockhead: What’s the biggest mistake novices make when trying to trade with futures?

Halsop: I think where most go wrong to start with is they think this is a “get rich quick scheme”. They treat it like a hobby that makes money rather than a business. Trading should be treated as seriously as any other business. Then they do the worst thing they could, they enter the market using crazy leverage like 50x or 100x with little to no training and no idea what they are doing. After they blow their account they blame everyone but themselves.

‘Stockhead: What would you say has been your best trade?
Haslop: Buying ETH at $85, Selling at 4k.’

Stockhead: It’s definitely easy to lose money trading with futures. But if you’re disciplined about it, it can be a good risk management tool, right? Let’s say you have a $10,000 portfolio. Opening a long position on ABC coin at 20x leverage with 5% of your stack gives you basically the same upside as buying $10,000 worth of ABC tokens. But your downside is limited to $500. Is this a valid way to think about it?

Halsop: That is one way to look at it. However even 20x can be a risky amount of leverage depending on the volatility of the market at the time. I’d recommend people stick to lower leverage when first starting.

Another benefit to futures trading is say you have a $10k trading account but only have $1000 of that on the exchange, leverage trading allows you to trade as if you had access to your full account.

Stockhead: Why do you think regulators don’t want people leverage trading?

Haslop: I believe statistics show that a large number of leverage traders are unsuccessful and lose money. I’ve definitely heard enough stories of people wiping out their accounts. Without correct risk management and understanding of leverage you can lose your account very quickly. For example, trading using 100x without a SL [stop loss] or understanding of liquidation.

“Regulators” think they are saving people by removing leverage. The problem I have with that is that it removes people’s choice and opportunity to make serious ROI if done right and I believe they should be aiming to ensure whoever uses leverage trading is properly educated and understands the risks before trading.

Stockhead: What’s the biggest lesson you try to teach students in your courses?

Haslop: Risk management, psychology, having a trade plan which ties these into your trading and actually following it is one of the most important points for trading. If you want to be around for a long time, you must use correct risk management and make sure you control your emotions when trading. Learning to actually read the charts is only half the battle. Managing your risk and controlling your emotions is the other half.

Stockhead: How big a part of trading is managing your emotions?

Haslop: Managing your emotions is one of the biggest components/challenges of trading. You could have sound TA, a solid trade plan and correct risk management, but if you let your emotions dictate your decisions, it nearly always ends badly with significant losses. Unfortunately I’ve had hundreds of people over the years message me to ask for help after losing a substantial amount of money because they let their emotions get the better of them. You MUST stick to your trade plan and you MUST treat it like a business.

Stockhead: You’ve switched to FTX, right? How have you found it?

Haslop: I have for this last week however I’m not really liking it yet to be honest. It seemed to be a clear winner for replacing Binance but for me personally I’m not yet a fan. I plan to open an account with Kucoin and give that a go next. After that I’ll decide where to move my capital to.

Stockhead: What would you say has been your best trade?

Haslop: Buying ETH at $85, Selling at 4k.

Stockhead: Anything else people should know about futures trading or the Crypto Den?

Haslop: Futures trading can yield very high rewards but comes with much higher risk than spot trading. You NEED to know more than just reading a chart. You have to understand the psychology of trading and the importance of having a trade plan. We teach all of this in our trading courses.