Contracts are not a terrifying beast, understanding them will allow you to earn with peace of mind!
A beginner's guide to contracts in the crypto world | If you don't understand contracts, come take a look!
Just entering the crypto world, do you feel your scalp tingle when you hear the word 'contract'?
Seeing others using several times leverage, it feels intense and incomprehensible?
Don't worry, today I'll explain crypto contracts in the simplest language, and you won't look confused after reading!
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1. What is a contract?
Simply put, a contract is a bet between you and someone else on whether the coin price will go up or down.
In the crypto world, this kind of 'bet' exists in the form of contracts, a contract = a 'agreement', with the smallest unit being one.
• If you and someone else open a new contract, the total market contract amount increases by 1;
• If you take over someone else's contract, it just changes the holder, and the total amount remains unchanged.
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2. What is the difference between contracts and spot trading?
Spot trading means: I give money, you give coins, and the transaction is settled.
But what about contracts? Everyone is betting on future price movements, and no physical delivery occurs.
For example:
You think Bitcoin (BTC) will rise, while they think it will fall—then you both can bet against each other.
When the market moves, one party makes a profit while the other loses. This is called a 'zero-sum game.'
Contracts also have two key points:
• Leverage can be applied (small money can do big things)
• Short selling is possible (you can profit even when the market falls)
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3. What exactly is leverage? Understanding it is crucial!
Assuming BTC is at 50,000 USDT, a contract requires only 50 USDT as margin.
If you open 100 times leverage, it means you are operating a position of 5,000 USDT with just 50 USDT.
Sounds impressive, right? But if the market drops by 1%, you will be liquidated—your money is gone!
However, if you have 2,500 USDT in your account and use that as margin,
although it appears to be 100 times leverage, the actual leverage is only 2 times, which is relatively safer.
So don't be fooled by 'multiples'; the actual leverage depends on how much money you have in your account backing it!
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Final note: Contracts are not a life-risking gamble; they can indeed be profitable, but the prerequisite is that you must understand them!
Beginners must remember four words: take it slow!
Don't rush in right away, and don't blindly trust high leverage.
Learn more and observe, mastering position management and risk control is the secret to longevity in trading!
