Contract trading is essentially a way of 'guessing price movements'; simply put, you don't need to actually buy a specific cryptocurrency, like Bitcoin, but instead bet on whether its price will go up or down through a contract, and then earn or lose money based on whether you guessed right or wrong.
Let's take an example
Assuming the current Bitcoin price is $30,000:
• If you think it will rise, you open a 'long position' (buying up);
• If you think it will fall, you open a 'short position' (betting down).
If you guess correctly, for example, if the price rises to $31,000, you can earn the $1,000 difference (multiplied by your trading volume). But if you guess wrong and the price falls, then you will lose money.
The difference between contract trading and spot trading
• Spot trading: You actually buy some coins; if they rise, you profit, if they fall, you lose, but the worst is that the coins you hold become worthless.
• Contract trading: You don't actually buy coins, you just sign a 'price betting agreement', and you can use leverage to amplify the trading amount.
What is leverage?
Leverage means 'playing with borrowed money'. For example, if you have 100 yuan, using 10x leverage allows you to operate a 1,000 yuan trade. This can amplify profits, but losses will also be magnified, and losing the principal can happen in an instant.
A more relatable summary
• Contract trading is like 'guessing the rise and fall of pork prices' at a market. You don't actually buy a whole pig, but bet on whether 'pork will rise or fall tomorrow'.
• If you use leverage, it's like you don't have much money but go bet on a few pigs' prices; if they go up, you make a fortune, but if they go down, you might lose everything.
Friendly reminder
Although contract trading looks exciting, the risks are extremely high, especially with leverage; it's easy to lose everything if you're not careful. Therefore, beginners are advised to start with spot trading and not to jump into contracts too easily.
Investing involves risks; proceed with caution.
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