If you send your money to a Centralized Exchange, you are effectively handing your savings to a company, not to a highly regulated and insured bank. Centralized Exchanges also may block trading perpetual derivatives, depending on your country.
A Digital Wallet circumvents the risk and barriers coming with that. It is your interface to the decentralized cryptocurrency networks and similar to how a bank account functions in traditional finance, all while the blockchain remains the technical custodial of your funds, and you technically hold the keys to them.
In effect, you are holding full custody. The Digital Wallet allows you to send, receive, and store digital assets. There are various types of wallets, including software wallets (MetaMask, Coinbase Smart Wallet, Phantom, Kepler, etc.) and hardware wallets (Trezor, Ledger). Software wallets are also called 'hot' wallets, hardware wallets are also called 'cold' wallets. Each has its own use case and level of security.
If you use MetaMask, it might appear inconvenient to track or find assets within your wallet. We suggest to use Decentralized Bank, which makes tracking easy.
While it's possible to use a Centralized Exchange (CEX) as a digital wallet for holding cryptocurrencies, it's crucial to understand the differences and potential risks compared to self-custody options.
Unlike traditional banks, CEXs operate with less regulation and do not offer the same level of insurances to protect your holdings. This means that if a CEX collapses, there's a risk that your crypto assets could be lost or become inaccessible, as was notably seen with the FTX collapse. Such incidents serve as stark reminders of the vulnerabilities within some centralized platforms.
It is, however, uncommon for CEXs to collapse, and the risk is notably lower during bull markets. In such periods, the value of cryptocurrencies typically rises, which can reduce financial pressures on exchanges due to fewer unrealized losses on their balance sheets. Despite this, the adage "not your keys; not your crypto" highlights the fundamental principle of cryptocurrency ownership and control. Holding your assets in a self-custody wallet where you control the private keys is considered best practice. This approach ensures that you have full control over your cryptocurrencies, mitigating the risk associated with trusting a third party.
That said, you should not be deterred from using CEXs altogether. These platforms are essentially required for fiat on-ramping, allowing for the easy exchange of traditional currency for cryptocurrency, and play a crucial role in the cryptocurrency ecosystem by providing liquidity, facilitating trading mechanisms, and offering a user-friendly interface for newcomers. The key is to use CEXs wisely—take advantage of their services for trading, liquidity and on-ramp services, but seriously consider transferring assets you intend to hold as long term positions to a self-custody wallet for greater security and peace of mind.
The most critical aspect in using a digital wallet is the security of your private key. This usually consists of twelve words and this phrase is what allows you to access your wallet and control your funds. Sharing or exposing your private key is akin to giving someone access to your bank account and it is paramount to keep it secure and confidential.
Software wallets offer an accessible way to engage with decentralized applications (dApps), enabling activities like swapping crypto (on Uniswap for example) or more advanced practices such as staking, lending and borrowing.
Although one level below hardware wallets in terms of security, with a reasonable level of care they are suitable for most crypto holdings and activities.
For substantial cryptocurrency holdings, hardware wallets are recommended due to their enhanced security. These devices store your private keys offline, making them inaccessible to online hackers unless you directly expose your private key.
Futures contracts usually come with the option of leverage, allowing traders to increase their nominal exposure. While this system can be used professionally and has many benefits because it allows to adjust risk level and capital efficiency, it is often misused by Traders who do not fully understand the risks involved. We take a thorough look at how to use leverage to your benefit in the guides' section 'Risk Management'.
High level investors often use futures contracts to hedge against potential downside, by taking an opposing position. This can be a futures contract betting in the opposite direction to their holdings. A trader or investor can offset their losses in their spot positions with the gains from their futures position.
Perpetual futures are a type of futures contracts in cryptocurrency trading that do not have an expiry date - allowing traders to hold positions indefinitely. Unlike traditional futures contracts, which are bound by a predefined settlement date, perpetual futures enable traders to speculate on the future price of a cryptocurrency without the need to roll over contracts.
Bybit allows you to turn Fiat into Crypto. It is readily available in most countries and offers a large selection of tokens to trade with, quick execution, and deep liquidity.
Navigate to the official page of Bybit and feel free to sign up (affiliate link with added rewards and campaigns).
Sign up as usual, and afterwards we highly recommend to set up Two-Factor Authentication at this stage to enhance your account's security. When entering Centralized Exchanges, we also recommend to complete Know-Your-Customer verifications to enhance your account security and increase withdrawal limits. This process requires uploading identification documents and may take some time to be approved. For the authentication process, it is best to use a Laptop with camera or keep your mobile ready to scan a QR code.
Holding "Spot" refers to holdig the cryptocurrency asset itself. Purchasing spot assets on Centralized Exchanges are straightforward processes and allow traders to buy or sell cryptocurrencies at current market prices. Here is a simplified guide to get started.
From the Bybit dashboard, navigate to the "Spot" section. This area allows you to engage in spot trading, where assets are bought and sold instantly.
Choose the cryptocurrency pair you're interested in trading (e.g., BTC/USDT). Most Centralized Exchanges provide a wide range of pairs, offering flexibility in trading various digital assets.
Decide on the type of order you wish to place. You can either take offers on the market (market order), or make offers on the market (limit order).
Market Order:
Instantly buys or sells at the current market price. On tokens without enough limit orders, price may slip during execution.
Limit Order:
Allows you to set a specific price at which you want your order to be executed.
Enter the amount of cryptocurrency you wish to buy or sell. For a limit order, also set your desired price. Review all details carefully to ensure accuracy.
Confirm and execute your order by clicking the corresponding "Buy" or "Sell" button. A market order will execute immediately, while a limit order will fill once the market reaches your specified price.
The easiest and most common method of trading on Bybit is USDT Perpetual Trading.
USDT Perpetual Contracts are derivative products that allow you to speculate on the future price of cryptocurrencies without an expiry date. Unlike traditional futures, these contracts are settled in USDT (Tether), a stablecoin pegged to the USD, providing a less volatile method of trading.
Navigate to the Bybit dashboard. Select the “Derivatives” tab and choose “USDT Perpetual” from the dropdown menu.
Choose the cryptocurrency pair you wish to trade (e.g., BTC/USDT).
Market Order: Executes immediately at the best available price.
Limit Order: Sets a specific price at which you want your order to be executed.
Conditional Order: Triggers a market or limit order if certain conditions are met.
Before trading, you need to transfer USDT from your ‘Funding’ or ‘Spot’ account to your ‘Derivatives’ account. You can find the transfer function on the right hand side of the page, below the ‘Order’ section.
Order Type Selection: Based on your strategy, select the type of order you wish to place.
Size and Leverage: Enter the quantity of the contract you want to buy or sell and adjust the leverage according to your risk management plan.
Price Setting: For Limit and Conditional Orders, specify the price at which you want your order to execute.
Stop Loss and Take Profit: Set stop loss and take profit levels to automatically close your position at predetermined prices, managing your risk.
Before executing your trade, review all order details, including the margin size, order type, price (if applicable), and leverage used. Ensuring accuracy in your order details can prevent mistakes and unwanted losses.
Once satisfied with your order setup, click the “Buy/Long” or “Sell/Short” button to open your trade. This action will execute your order according to the parameters you’ve set, officially entering you into a position.
You can close your trade manually or automatically through your stop loss or take profit orders.
Kwenta presents a forward-thinking and beneficial approach to futures trading in the growing digital currency realm on the Optimism chain. It is a fully decentralized derivatives trading platform for a large range of assets.
Its standout feature is enabling users to execute trades directly from their wallets, eliminating the necessity for traditional centralized exchanges. This method significantly boosts security by diminishing the risks tied to exchange breaches, while ensuring traders maintain complete control over their own assets. Like with any Decentralized Exchange, there are no limits imposed on you based on your location.
Before you can trade on Kwenta, you need your funds on the Optimism network.
If you already hold crypto on a wallet on a different network, you will need to use a bridge. Research and select a bridge which offers a balance of security, speed and low fees. Good examples for bridges include: Orbiter Finance, XY Finance or Layer Zero's Stargate.
Visit your chosen bridge's website and connect your Ethereum wallet (e.g., MetaMask).
Choose the asset you want to bridge (e.g., ETH, USDC) and specify the amount. Ensure you account for withholding fees, transaction fees, or gas costs.
Follow the bridge's instructions to start the transfer. Confirm the transaction within your wallet.
Transfers usually take a few minutes between Layer 2 networks (Arbitrum, Optimism, Base).
Once the transfer is complete, switch your wallet to the Optimism network and check your balance to confirm the arrival of your funds.
Go to Kwenta’s official page (affiliate link) and connect your wallet, now set to the Optimism Network.
Swap your assets for sUSD on Kwenta or another DEX on Optimism, as sUSD is the primary collateral for futures trading on Kwenta.
Keep some Ethereum in your wallet in order to create an account.
With it you will be able to see your trading history, to earn rewards for your volume or for referrals.
Input the amount of sUSD you wish to use as collateral for your trade.
Now enter position size based on your risk and planned stop loss - leverage is automatically adjusted.
Always keep enough ETH available, you will need it to close existing positions and pay fees.
Add your Stop Loss at the price level your trading setup tells, before you execute this trade.
Add a take profit level and may the trading gods be with you (jk, please use systems, do not gamble).
Hyperliquid allows to trade futures with very deep liquidity, low fees, very good speed and an ample amount of tokens. It is a fully decentralized derivatives trading platform on Arbitrum chain.
Like Kwenta, Hyperliquid's main feature is enabling users to execute trades directly from their wallets, eliminating the necessity for traditional centralized exchanges. This method significantly boosts security by diminishing the risks tied to exchange breaches, while ensuring traders maintain complete control over their own assets. Like with any Decentralized Exchange, there are no limits imposed on you based on your location.
Before you can trade on Hyperliquid, you need your funds on the Arbitrum network. If you already hold crypto on a wallet on a different network, you will need to use a bridge.
Research and select a bridge which offers a balance of security, speed and low fees. Good examples for bridges include: Orbiter Finance, XY Finance or Layer Zero's Stargate.
Visit your chosen bridge's website and connect your Ethereum wallet (e.g., MetaMask).
Choose the asset you want to bridge (e.g., ETH, USDC, USDT) and specify the amount. Ensure you account for withholding fees, transaction fees, or gas costs. Stargate allows you to convert and add gas to your destination, here we added 0.05 ETH which will be added to the gas fee of MATIC on Polygon.
Follow the bridge's instructions to start the transfer. Confirm the transaction within your wallet.
Transfers usually take a few minutes, be patient and do not worry. If the token does not appear in your wallet, we suggest debank to check your portfolio.
Once the transfer is complete, switch your wallet to the Optimism network and check your balance to confirm the arrival of your funds.
Go to Hyperliquid’s official page (affiliate link) and connect your wallet, now set to the Arbitrum Network.
Swap your assets for USDC, USDC.e or USDT on Hyperliquid or another DEX, as these are needed for collateral for futures trading on Hyperliquid.
Keep some Ethereum in your wallet in order to execute interactions with Hyperliquid. Deposit your stablecoins. Ensure that you avoid liquidation cascades among your positions: Click Cross (seen on screenshot, top left hand corner) and enable Isolated Margin.
Input the intended position size (here seen as 7117 USD). Now enter leverage based on your risk and planned stop loss - margin is automatically adjusted.
Use our Position Size Calculator. It will make it very easy to generate position size and leverage!
Add your Stop Loss at the price level your trading setup tells, before you execute this trade. Add a take profit level and may the trading gods be with you.
