Cryptocurrency Contract Beginner's Guide | Essential Knowledge from Scratch

For those who are new to the cryptocurrency space, are you feeling confused about contract trading? 😵 Don’t worry, today I will introduce you to the basic knowledge of cryptocurrency contracts so that you can easily get started～

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1. What is a Cryptocurrency Contract

A contract, also known as a futures contract, is referred to as FUTURE in English. In the cryptocurrency world, making a contract trade is like two people signing a contract 📄. Contracts are measured in lots, and the smallest trading unit is one contract.

Contracts can be newly signed; for example, if you sign a new contract with someone, the total number of contracts in the world will increase by 1. It is also possible for someone to transfer an existing contract to you, in which case the total number of contracts remains unchanged.

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2. Difference Between Contracts and Spot Trading

Spot trading involves immediate payment and delivery, meaning money and goods are settled simultaneously 💴. In cryptocurrency contract trading, the parties involved typically trade not physical goods, but rather expectations about future prices.

For example, if someone believes that Bitcoin will rise 📈 while another believes it will fall 📉, they can enter into a contract to bet against each other. Essentially, contracts are zero-sum games, where one party's gain is the other party's loss.

The biggest difference between contracts and spot trading is the ability to leverage and short sell. Leverage is used to adjust the margin ratio, and the leverage multiplier for each contract is set by the exchange based on the volatility and liquidity of the cryptocurrency.

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3. The Secret of Leverage

Assuming Bitcoin is currently priced at $50,000, and the margin for one contract is $50. If you open a position with 100x leverage, the contract value will be $5,000. If you only have $50 in your wallet and the price drops by 1%, you will face a liquidation 😱.

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However, if you have $2,500 in your wallet, this money can be used as margin, making your actual leverage 2x rather than 100x. Therefore, the size of leverage depends not only on the chosen leverage ratio but also on the funds in your wallet.

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When first encountering cryptocurrency contracts, you must operate cautiously, learn more, and understand better～ If you have any questions, feel free to leave a 💬 message! #Strategy增持比特币 $BTC