Throughout my years of contract trading, I have encountered traders of varying skill levels and found that both novices and experienced traders have certain gaps in their understanding of some basic knowledge and rules. Therefore, at the active suggestion of group members, I decided to organize and share some trading rules and foundational knowledge that are essential for playing contracts, to help everyone trade better. Due to the abundance of foundational information, this may not be comprehensive in one go, and this article will be updated periodically.

Contract trading refers to a mutual agreement between buyers and sellers to trade an asset at a specified price and quantity at a future time, thereby generating profits. Investors can buy long contracts to gain from rising digital asset prices or sell short to profit from falling digital asset prices. Contract trading is divided into delivery contract trading and perpetual contract trading.

Delivery contracts have a specified delivery date, commonly with weekly, monthly, or quarterly delivery contracts. Before the delivery date, each delivery contract exhibits an independent price trend, which may differ from the spot price. On the delivery date, both parties will close their positions at the spot price (normally based on the weighted average price of the spot in a period before settlement), so prices will return to the spot price as the delivery date approaches.

Perpetual contracts do not have a fixed delivery date, and prices are calculated based on the latest transactions in the order book, which may also deviate from the spot price. To balance the price difference between contracts and spot prices, exchanges introduce funding rates to encourage price convergence.

1. Exchange Rules and Common Terms

Trading Pair: A combination of two assets exchanging in the cryptocurrency market, such as BTC/ETH, which refers to using ETH as the base currency to buy and sell BTC, with the price being the exchange rate between BTC and ETH.

Order Book: A list displaying all outstanding orders, containing the bid and ask prices and quantities. The order book is usually sorted by price from low to high (for buys) or from high to low (for sells). Traders can use the order book to understand current market trading intentions and price trends. The depth of the order book represents the number of orders at different price levels. Greater depth indicates larger trading volume at that price level, reflecting higher market acceptance of that price.

Latest Price: The price of the most recently matched order executed by the exchange.

Marked Price: A weighted average of the latest prices from multiple exchanges, aimed at providing a more stable price reference to reduce price volatility and risks from market manipulation, ensuring fair and accurate contract pricing.

Transaction Fee: The commission charged by the exchange to both buyers and sellers when a trade is executed. The commission rate may vary depending on whether it is a maker or taker order. Advanced market makers can even earn transaction fees by taking orders.

Funding Rate: The funding rate is used to adjust the deviation between perpetual contract prices and spot prices. When the prices are inconsistent, the exchange uses the funding rate to balance them. The funding rate can be positive or negative, and the algorithms in each exchange differ, depending on whether the spot price is above or below the contract price. This rate is a payment from players to players and can help us understand market sentiment and direction.

Buy/Sell Mode: Buying and selling contracts where the buy and sell orders offset each other, allowing only one directional position at a time.

Open/Close Mode: In digital currency contract trading, the open/close mode allows for bi-directional positions, with long and short directions settling independently.

Isolated Margin: Allocating a portion of margin for each trade, which is locked by the exchange. Other trades cannot be executed until the position is closed. If there is a drastic market fluctuation, only this portion of the margin will be lost, reducing potential risk while lowering capital utilization.

Cross Margin: Under the condition of locking a small portion of the margin, all funds in the trading account are used as margin. By increasing leverage, the locked margin ratio can be reduced, allowing other funds to be flexibly utilized, thus improving capital efficiency. There is a risk of losing the entire margin during drastic fluctuations. Setting stop-loss can minimize this risk.

Margin: When trading contracts, traders must provide a portion of funds as collateral to obtain higher positions. This margin will be locked by the exchange to ensure there are sufficient funds to maintain positions during market fluctuations. In case of drastic fluctuations and losses, the platform will use this margin to cover the losses.

Margin Rate: An exchange's risk control mechanism, reaching 100% will trigger forced liquidation. Margin Rate = (Total balance in the contract + total profit - quantity to sell in orders - quantity needed for options - quantity needed for isolated margin - total order fees) / (Maintenance margin + liquidation fee)

Contract Quantity: Represents the unit quantity that signifies a specific contract size, and is also the minimum trade volume in contract trading. Due to the vast differences in value among various cryptocurrencies in the market, exchanges have introduced the concept of contracts for easier calculations. For example, in OK Exchange, one BTC contract equals 0.01 BTC.

Limit Order: Traders place orders with desired quantities and prices in the order book, waiting for transactions. The exchange matches these with other orders willing to trade at the same price. This type of order incurs lower fees, and market makers can earn extra commissions from the exchange through limit orders.

Market Order: Traders wish to quickly execute their orders, selecting the best price from existing orders in the order book for immediate execution. This type of order incurs higher fees.

Limit Price: Traders restrict buying and selling to their expected price range. When there are suitable counterparties, the exchange triggers the order, which may trigger limit or market orders.

Market Price: Traders wish to quickly execute their orders, selecting the best price from existing orders in the order book for immediate execution. This will only trigger market orders.

Take Profit: Traders set their expected profit levels, and when the profit is reached, the position is closed to secure gains. Using market orders to close positions usually incurs slippage, leading to profits being lower than set values. Using limit orders can perfectly achieve profit expectations without slippage, but requires waiting for counterparties to execute.

Stop Loss: Traders set their acceptable loss thresholds, triggering a closure to limit losses when the threshold is reached. Using market orders typically incurs slippage, resulting in losses exceeding set values. Using limit orders can perfectly achieve expected quality without slippage, but may require waiting for counterparties. During high volatility, there may be no counterparties, leading to stop-loss failures and greater losses.

Slippage: The matching of orders in the order book during execution may vary from expected prices due to network latency, trading depth, and other factors.#RWA热潮 $BTC