An analysis of the fees in contract trading: profits may also vanish into thin air
In contract trading, many people have experienced watching their account balance rise continuously, feeling immense joy, believing they are about to make a fortune. However, when the settlement moment arrives, they find that the profit has vanished. What could be the reason? The answer lies in the trading fees of contract trading that we are going to discuss today. These hidden 'thieves' often silently steal your profits, turning your victories into illusions. Next, we will delve into the origins and implications of these fees.
First, we must clarify that the fees in contract trading are far more complex than just simple 'service fees'. They consist of multiple parts, including opening and closing fees, funding fees, and forced liquidation fees. Among them, opening and closing fees are incurred with each trade, similar to the tolls we pay in our daily driving. These fees vary depending on the type of order; for example, the Taker fee rate for market orders is typically 0.5%, while the Maker fee rate for limit orders is 0.2%.
Additionally, the funding fee is also an important fee in contract trading. It is vividly compared to 'rent' or 'overnight fees' in the contract world, settled every eight hours. The purpose of the funding fee is to maintain the consistency between contract prices and spot prices, and its amount can be positive or negative, meaning in some cases you may have to pay fees, while in other cases you may receive fees.
When the market is volatile or leverage is too high, forced liquidation fees can also become a significant expense. When a position is forcibly closed by the system due to insufficient margin, a liquidation fee will be incurred as part of the bankruptcy liquidation insurance. Such fees often cause investors to suffer substantial losses during market volatility.
In summary, the fees in contract trading are a complex and important concept. Investors must fully understand and calculate these fees when participating in contract trading to avoid having their profits eroded by hidden fees.
Opening fee
When you use a market order to open a position and assume the Taker fee rate is 0.5%, your opening fee is calculated as follows:
10,000 USDT × 0.5% = 5 USDT.
Closing fee
Similarly, when closing a position, you also choose a market order and maintain the 0.5% Taker fee rate, so your closing fee is:
11,000 USDT × 0.5% = 5 USDT.
Funding fee
Assuming your holding period spans a day, and the funding fee is positive, meaning you need to pay. For example, if the rate is 0.1%, your funding fee would be:
10,000 USDT × 0.1% = 1 USDT.
Final profit calculation
You initially invested 10,000 USDT and received 11,000 USDT upon closing, so the total profit is:
11,000 - 10,000 = 1,000 USDT.
But please note, this still needs to deduct fees and funding fees:
1,000 - 5 - 5 - 1 = 95 USDT.
It may seem like you are making a lot of profit, however, during periods of low market volatility, where profits are only in the tens or hundreds of USDT, these hidden fees can devour your earnings.
Why are the fees for contract trading higher than spot trading?
There are several key reasons behind this:
Funding fee
In spot trading, there is no funding fee, while in contract trading, settlements occur every eight hours. Sometimes you need to pay, and sometimes you can earn, but market trends are unpredictable, and funding fees may lead to losses.
Leverage risk
Contract trading utilizes leverage, such as 10x, 20x, etc., which amplifies profit potential but also increases the burden of fees. For example, when you invest 1,000 USDT and use 10x leverage, you are actually controlling a position worth 10,000 USDT, so the fees are also calculated based on this position size.
Forced liquidation risk
In spot trading, you buy exactly what you pay for, while contract trading involves leverage. During market volatility, your position may be forcibly liquidated due to insufficient margin, which incurs additional liquidation fees. These fees do not exist in spot trading.
In summary, the issue of fees in contract trading cannot be ignored. Investors must carefully calculate and understand these fees to ensure their profits are not undermined by these hidden costs.
For many investors venturing into contract trading for the first time, they often underestimate the substantial impact of fees on their final profits. Imagine that every time you open a position, you hope to make a small profit, for example, just making 1 USDT and then choosing to close the position. However, the reality might be that after paying the opening and closing fees, your actual gains are minimal or even result in a loss.
Take the Taker fee rate of 0.5% as an example. If your trading amount is 10,000 USDT, then the fee for both opening and closing the position is 5 USDT each, accumulating to 10 USDT. If your profit is only 1 USDT, then after deducting these fees, you are actually at a loss of 9 USDT.
Moreover, if your position spans the funding fee settlement cycle, you will need to pay an additional funding fee. Taking the funding fee of 1 USDT as an example, your total cost will increase to 11 USDT. This means that even if you only make a profit of 1 USDT, the settlement result will still be a loss of 10 USDT.
Therefore, to truly achieve profits in contract trading, you must ensure that your earnings are sufficient to cover all fees. This requires in-depth market analysis, strict risk management, and precise calculation of every fee. After all, in the world of contract trading, the hidden fees often act as 'invisible killers' leading to losses.
