Cryptocurrency Contract Beginner's Guide | Essential Knowledge from Scratch
Are you confused about contract trading in the cryptocurrency world? 😵 Don’t worry, today I will explain the basic knowledge of cryptocurrency contracts to help you get started easily～
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1. What is a cryptocurrency contract?
A contract, also known as a futures contract, is referred to as FUTURE in English. In the cryptocurrency world, entering into a contract trade is like two people signing a contract 📄. Contracts are measured in lots, and the smallest trading unit is one contract.
Contracts can be newly created, for example, if you and someone else sign a new contract, the total contract open interest in the world will increase by +1. Alternatively, someone may transfer an existing contract to you, in which case the total amount of contracts remains unchanged.
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2. Difference between contracts and spot trading
Spot trading involves immediate exchange of money for goods, with both parties settling their accounts 💴. However, in cryptocurrency contract trading, the parties generally trade not physical goods but their expectations of future prices.
For example, if someone believes that Bitcoin will rise 📈 while another thinks it will fall 📉, they can sign a contract to bet against each other. Essentially, contracts are a zero-sum game; the money one party earns is the money the other party loses.
The biggest difference between contracts and spot trading is the ability to use leverage and short sell. Leverage is used to adjust the margin ratio, and the leverage multiple for each contract is set by the exchange based on the volatility and liquidity of the cryptocurrency.
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3. The secret of leverage
Suppose Bitcoin is currently priced at 50,000, and the margin for one contract is 50. If you open a position with 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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However, if you have 2,500 in your wallet, all of that can be used as margin, and your actual leverage will be 2x instead of 100x. Therefore, the size of leverage depends not only on the chosen leverage ratio but also on the funds in your wallet.
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If you're new to cryptocurrency contracts, be sure to operate cautiously, learn more, and understand better. #机构疯抢以太坊
