Cryptocurrency Contract Beginner's Guide | Essential Knowledge from Scratch
For those just entering the cryptocurrency world, are you confused about contract trading? 😵 Don't worry, today I'm here to educate you about the basic knowledge of cryptocurrency contracts, so you can easily get started~
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1. What is a Cryptocurrency Contract
A contract is also called a futures contract, in English it's FUTURE. In the cryptocurrency world, making a contract trade is like two people signing a contract 📄. Contracts are traded in units, 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. Alternatively, someone might transfer an existing contract to you, in which case the total amount of contracts remains unchanged.
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2. The Difference Between Contracts and Spot Trading
Spot trading involves exchanging money for goods on the spot, with clear settlement 💴. In cryptocurrency contract trading, the parties typically do not trade physical assets but rather speculate on future prices.
For example, if one person thinks Bitcoin will rise 📈 while another thinks it will fall 📉, they can sign a contract to gamble against each other. Essentially, contracts are zero-sum games, where one party's profit 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 asset's volatility and liquidity.
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3. The Secret of Leverage
Assuming Bitcoin is now priced at 50,000 per unit, and the margin for one contract is 50. If you use 100x leverage, the contract value is 5,000. If you only have 50 in your wallet and the price drops by 1%, you will be liquidated 😱.
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But if you have 2,500 in your wallet, all that money can be used as margin, making your actual leverage 2x, not 100x. Therefore, the size of leverage depends not only on the selected leverage ratio but also on the funds available in your wallet.
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If you're just getting into cryptocurrency contracts, you must operate cautiously, learn more, and understand better~ If you have any questions, feel free to leave a 💬 message, and we can discuss it together.
