Contract trading is a way to invest and manage risks by buying and selling contracts rather than physical assets. Through this period of learning, I have mastered the core concepts of contract trading, common operations, main risks, and various practical strategies. Below is my learning summary.


I. Basic Concepts of Contract Trading


The biggest difference between contract trading and spot trading is that contract trading involves buying and selling 'contracts', allowing for both long (bullish) and short (bearish) trades, and the use of leverage to amplify returns and risks. In contrast, spot trading can only go long, directly buying and selling physical assets, with relatively smaller risks and returns.


Several important concepts in contract trading include:



  • Leverage: Controlling a larger amount of contracts with a smaller amount of capital can amplify profits, but it also magnifies losses.



  • Long and Short: Going long means bullish, going short means bearish, and both directions can be traded.



  • Margin: The capital invested when opening a contract, which is the maximum loss you can afford.



  • Forced Liquidation: When losses approach the margin limit, the system will automatically close your position to prevent further losses.



  • Funding Rate: Mainly appears in perpetual contracts, where both long and short parties periodically pay each other fees to keep the contract price close to the spot price.



  • Transaction Fees: Paid each time a position is opened or closed, especially important to note during frequent trading.



  • Take Profit and Stop Loss: Pre-set profit and loss price points, the system will automatically close your position to protect profits and capital.




II. Differences Between Contract Trading and Spot Trading



  • Different Trading Objects: Spot is physical, contracts are agreements.



  • Different Profit Methods: Spot can only go long, while contracts can go long and short.



  • Leverage Usage: Spot generally does not use leverage, while contracts can use high leverage.



  • Delivery and Holding: Spot can be held long-term, while contracts have expiration or forced liquidation mechanisms.




III. Main Risks and Return Characteristics of Contract Trading


Contract trading has high returns and strong flexibility, but also comes with significant risks. Especially during high leverage and extreme volatility, it can easily lead to liquidation or even a total loss of capital. Spot trading has lower risks, suitable for long-term holding, but can only generate profits when prices rise.


IV. Common Order Types



  • Market Order: Execute immediately at the best current market price, fast but may have slippage.



  • Limit Order: Set a desired price, only executes if it reaches that price, controllable price but may not execute.



  • Stop Loss Order: Set a trigger price to automatically close the position, preventing losses from expanding.




V. Position Management and Leverage Selection


Reasonably control the proportion of capital invested in each trade (generally recommended to be within 5% of total capital). Beginners are advised to use low leverage (2-3 times) so that even if losses occur, they can be tolerated, protecting capital from being wiped out in a single market movement.


VI. Common Trading Strategies



  • Trend Following: Trade long or short in the direction of the market, commonly using moving averages, trend lines, and other tools to assist in judgment.



  • Grid Trading: Buy and sell in batches within a certain range to profit from price fluctuations, suitable for sideways markets.



  • Range Fluctuation: Buy low and sell high within a price range, repeatedly operate.



  • Hedging: Use contracts to hedge spot risks, reducing overall volatility.




VII. Basic Skills and Risk Management



  • Learn to read moving averages and judge the overall trend, reducing emotional trading.



  • Set take profit and stop loss for each trade to lock in profits and control losses in a timely manner.



  • Clarify the impact of transaction fees, funding rates, and forced liquidation mechanisms to avoid losses due to ignoring costs.




VIII. Common Terminology



  • "Pin Bar": A significant price fluctuation in a short time creates a long shadow, easily triggering stop-loss and liquidation.



  • TP Price: Take profit price, automatic profit closing point.



  • SL Price: Stop loss price, automatic loss closing point.




IX. Learning Insights


Through systematic learning of contract trading, I realized that it has both high return opportunities and high risks. Only by continuously accumulating knowledge, strictly executing risk management, and acting rationally can one survive and grow in the market in the long term.


Contract trading is a skill that requires continuous learning and practice. Understanding each basic concept and mastering common tools and strategies is the first step to becoming a qualified trader.