Top Metrics to Look Out for while Trading in Crypto Futures

Navigate crypto futures: Key metrics for informed trading decisions.

10 May 2023 | 11 min read

Table of Contents

Introduction

Crypto futures trading can be a highly lucrative endeavor for traders who know how to navigate the volatile market and make informed decisions. However, without the right tools and knowledge, traders can quickly find themselves on the wrong side of the trade. That’s where understanding key metrics and indicators come into play. In this article, we’ll explore some of the top metrics that traders should keep a close eye on when trading crypto futures. By monitoring these metrics and using them to inform their trading decisions, traders can increase their chances of success in the highly competitive crypto futures market.

In this article, we will be taking a look at some of the most well-known and popularly used futures-based metrics that crypto futures traders should look at before taking a trade in the market. We will look at each metric, explore it in detail, and also understand the various interpretation one can make from it. Let’s get started!

Metric 1: Option Chain

An option chain is a powerful tool that provides traders with a clear view of all the available options contracts for a particular crypto asset. It can be particularly useful for traders who are looking to trade futures in the crypto market. Option chains can help traders to identify potential price levels, set up trades, and manage risk. This is what a typical options chain looks like:

BTCUSDT Options Chain | Source: Delta Exchange

Key Features of Using an Option Chain for Crypto Futures Trading:

Provides real-time data: An option chain provides real-time data on the price of options contracts, allowing traders to make informed decisions based on current market conditions.
Allows for precise risk management: Traders can use the option chain to identify potential price levels and set up trades with specific risk parameters, allowing for precise risk management.
Helps to identify market sentiment: The put/call ratio can be used to identify market sentiment, with a high put/call ratio indicating that traders are more bearish on the market and a low put/call ratio indicating that traders are more bullish (more on this later).
Provides insight into market liquidity: An option chain provides information on the volume and open interest of options contracts, allowing traders to gauge market liquidity and make more informed decisions.

By utilizing option chains in futures trading, traders can make more informed decisions and improve their profitability in the market. While an option chain is a tool that analyzes the options market data, options contracts, like futures contracts are derivatives of an underlying asset too – hence can be used for futures trading as well.

Here’s how a crypto futures trader can interpret an options chain chart:

Option strike prices with high open interest typically tend to be regions of support and resistance.
Strike prices with high implied volatility indicate there is a lot of activity on that particular strike price and the value of the option contract tends to be on the higher side.

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Metric 2: Open Interest Chart

Open interest is a widely used metric in futures trading that can help traders assess market sentiment and potential price movements. It refers to the total number of outstanding futures contracts that have not yet been settled by delivery or offset. By analyzing open interest charts, traders can gauge the degree of bullish or bearish sentiment among market participants and identify potential trend reversals or breakouts. This is what a typical Open Interest Chart looks like:

Bitcoin Open Interest Chart | Source: Coinglass

An open Interest Chart is essentially another form of representation of the data from an option chain. It shows various strike prices for the underlying asset on the X-axis while the two Y-axis indicate call and put open interest and trading volumes.

Key Features of Using an Open Interest Chart for Crypto Futures Trading:

Provides insight into the collective expectations of market participants
Can be used to confirm or challenge other technical indicators and chart patterns
Can help identify potential support and resistance levels
Can indicate the degree of market participation and liquidity in a given contract
Can provide early warning signals of potential trend reversals or breakouts
Can help traders make more informed decisions about when to enter or exit trades

Overall, incorporating open interest charts into a comprehensive trading strategy is another powerful technique that traders use to make better decisions and potentially improve their profitability in the crypto futures market.

Here’s how a crypto futures trader can interpret an open interest chart:

As a rule of thumb – from the chart above, strike prices with high call open interest (green spike zones) indicate strict resistance zones – because a high call writer activity typically indicates that traders don’t think prices will move above a particular strike price.
While strike prices with high put open interest (red spike zones) indicate strict support zones – because a high put writer activity typically indicates that traders don’t think prices will move below a particular strike price.

Metric 3: Put/Call Ratio

A put/call ratio is a popular metric used in futures trading to identify overall market sentiment. It is the ratio of the open interest of put options to the open interest of call options. A higher put-call ratio indicates bearish sentiment, while a lower ratio indicates bullish sentiment. One can easily source this data point from Coinglass.com, where it is represented in the form of a call/put ratio, which can easily be inverted – as a put-to-call ratio is the most well-known format for representing this ratio.

Put/Call Ratio | Source: Coinglass

Key Features of Using a Put/Call Ratio for Crypto Futures Trading:

Helps traders identify market sentiment: By monitoring the put/call ratio, traders can get an idea of how the market is feeling about the underlying asset.
Helps traders forecast price trends: Traders can use the put/call ratio to make predictions about potential price movements. If the put-call ratio is high, it may indicate that the price of the asset is likely to go down.
Can be used in conjunction with other metrics: The put/call ratio is often used in combination with other metrics, such as option chain and open interest, to get a more complete picture of market sentiment.

Overall, the put-call ratio is a valuable tool for traders looking to make informed decisions in futures trading in crypto.

Metric 4: Futures Liquidation Data

Futures liquidation data is another very important metric for crypto futures traders. This data can provide valuable insights into the overall market sentiment and trading patterns. When a trader’s position is liquidated, it means that they have lost all of their collateral and their trade has been closed out by the exchange. This can happen when the price of the underlying asset moves against the trader’s position. By analyzing liquidation data, traders can gain a better understanding of market trends and adjust their positions accordingly.

Also read: How to Avoid Liquidation in Crypto Futures Trading

Here’s what a Liquidation Data chart looks like:

Bitcoin Liquidation Data | Source: Coinglass

Key Features of Using Liquidation Data for Crypto Futures Trading:

Helps identify potential price reversal points
Provides insight into market sentiment and trader positioning
Helps identify potential market manipulation or whale activity
Provides valuable data for developing trading strategies and making informed decisions
Can be used in combination with other metrics for more accurate analysis

Here’s how a crypto futures trader can interpret Futures Liquidation Data:

High liquidation numbers, whether in long or short positions typically indicate an inflection point in the market and generally one can see a reversal from that point.
Thus, high liquidation during a rally can indicate a possible end of a rally, while high liquidation after a collapse can also signify the end of the price correction for the time being.

Metric 5: Funding Rate

The funding rate is the next key metric to watch when trading crypto futures, as it can provide valuable insight into market sentiments at any given point in time. The funding rate is a fee that is paid between traders in perpetual futures contracts, and it is calculated based on the difference between the contract price and the spot price of the underlying asset. Represented in the form of a percentage, a positive funding rate means that traders who are long on the contract are paying traders who are short, and vice versa for a negative funding rate.

Bitcoin Futures Funding Rates | Source: Coinglass

Key Features of Using Funding Rate Data for Crypto Futures Trading:

The funding rate can be used in conjunction with other metrics, such as open interest and price charts, to gain a more comprehensive view of the market.
Traders can use the funding rate to help inform their trading decisions, including when to enter or exit positions.
It’s important to monitor the funding rate regularly, as sudden shifts can indicate significant changes in market sentiment and potential price movements.

Here’s how a crypto futures trader can interpret Funding Rate Data:

A high funding rate can indicate that there is a lot of demand for long positions, potentially signaling a bullish trend.
Conversely, a low or negative funding rate may suggest that there is more demand for short positions, indicating a bearish trend.

Metric 6: Long/Short Positions Ratio

The next way to gain insights into the market sentiment for a particular crypto is to analyze the long and short positions data of futures traders. In the world of crypto futures trading, long positions refer to bets that the price of the underlying asset will rise, while short positions refer to bets that the price will fall. By monitoring the ratio of long to short positions, traders can gauge the broader market sentiment and make more informed decisions about their own trades.

Bitcoin Long/Short Positions Ratio | Source: Coinglass

The above chart represents Bitcoin’s long-to-short position ratio in a 30-minute timeframe – and this can be effectively used by scalpers and intraday traders in the crypto futures market to trade more effectively.

Key Features of Using Long/Short Positions Ratio for Crypto Futures Trading:

Helps traders understand the market sentiment for a particular crypto asset and identify potential price movements.
Allows traders to take contrarian positions to capitalize on market sentiment shifts.
Typically, can be used in combination with other technical indicators to refine trading decisions.

Metric 7: Bitcoin Futures-based ETF Data

The next metric we will be looking at is crypto ETF data. This is a metric that typically applies only to Bitcoin since Bitcoin futures-based ETFs have the most volumes and highest AUMs (assets under management). Some examples include Purpose Bitcoin ETF and ProShares Bitcoin Strategy ETF (BITO). Tracking the AUMs under these two major ETFs can indicate how institutional money is flowing into the crypto market and thus provides a long-term indication for the king coin.

ETFs have become very popular, especially among large-scale institutional traders and investors as they have a lot of funds they want to invest in the crypto market but do not want the hassle of owning and storing crypto assets themselves. That’s where ETFs come in. These ETFs can be used to profit from the price movement of Bitcoin without actually owning the crypto asset. These are typically futures-based ETFs since spot crypto-based ETFs have regulatory issues in the United States.

Key Features of Using Bitcoin ETF Data for Crypto Futures Trading:

ETF AUMs can indicate how institutional money is flowing into the crypto market – and thus indicates smart money movement in the crypto sector.
Monitoring ETF holdings can provide insights into the strategies of institutional investors and their views on Bitcoin’s price direction.
Comparing ETF prices with the spot price of Bitcoin can reveal market inefficiencies and potential arbitrage opportunities.

Thus, by analyzing Bitcoin futures-based ETF data, traders can gain a better understanding of market sentiment and make more informed trading decisions and can supplement their existing trading strategies.

Additional Read: Avoid Common Mistakes Made by Crypto Futures Traders

Conclusion

In conclusion, trading crypto futures can be highly lucrative if done with the right strategy and information. The top metrics to look out for when trading crypto futures include option chain, open interest, put/call ratio, liquidation data, funding rate, and long vs short positions data. These metrics provide valuable insights into the market sentiment, potential price movements, and other crucial information necessary for making informed trading decisions.

Confident in your understanding of these metrics? Check out BTCUSDT perpetual futures on CoinDCX!

By incorporating these metrics into their trading strategy, crypto futures traders can improve their profitability and overall success in the market. Additionally, keeping an eye on the Bitcoin futures-based ETF data can also provide valuable information for trading decisions. Ultimately, successful crypto futures trading requires a combination of knowledge, strategy, and diligence in monitoring market trends and metrics. Happy trading!