Many people are interested in contract trading in the cryptocurrency world, but they don’t know where to start. Today, I will share some basic knowledge and practical tips on contract trading. Newbies, hurry up and take note!
1. What is contract trading?
In simple terms, contract trading is an agreement between you and your trading counterpart to buy or sell a certain amount of cryptocurrency at a specific price at a future time. You do not need to actually own these cryptocurrencies; as long as your judgment on price trends is correct, you can make a profit. For example, if you think Bitcoin will rise in the future, you can open a long position; if you think it will fall, you can open a short position.
2. What types of contracts are there?
1. Perpetual contracts: They have no expiration date and can be held indefinitely. Their price is anchored to the funding rate and spot price, with the funding rate settled every 8 hours, where both long and short parties pay fees to each other based on the rate.
2. Delivery contracts: They have a fixed expiration date and are settled or delivered in kind at the spot price upon expiration. For example, quarterly contracts, semi-annual contracts, etc.
3. Core concepts and operations
1. Contract size: The minimum trading unit of a contract. Each contract for different cryptocurrencies represents different values. For example, in a BTC/USDT perpetual contract, 1 contract may equal 0.001 BTC.
2. Leverage: You can use small funds to control large investments, but both profits and risks are magnified. For example, with 10x leverage, a capital of 1000 yuan can operate a contract value of 10,000 yuan. However, the higher the leverage, the greater the risk of forced liquidation.
3. Opening a position: It can be divided into buying to go long (bullish) and selling to go short (bearish). For example, if the current price of BTC is 50,000 USDT, you buy 10 long contracts with 50x leverage, occupying a margin of 10 USDT.
4. Closing a position: This means ending the contract trading to lock in profits or losses. You can choose to close at market price or limit price.
5. Forced liquidation: When your margin rate falls below the maintenance level, the system will automatically help you close your position to avoid further losses.
4. Risk control
1. Control leverage: Newbies should try to keep it within 5x. The lower the leverage, the smaller the risk of liquidation. Under 10x leverage, a 10% drop in the price of cryptocurrency may lead to liquidation; under 5x leverage, a 20% drop will lead to liquidation.
2. Set stop-loss: Each trade's stop-loss should not exceed 3% of the principal. For example, with a principal of 100,000, each stop-loss should not exceed 3,000. This way, even if you make three mistakes, you can still retain most of your capital and have a chance to recover.
3. Choose mainstream coins: Mainstream coins (like BTC, ETH) have high costs of manipulation by big players, are relatively more stable in price, and have fewer sharp fluctuations.
4. Pay attention to trading times: Try to avoid the 'liquidation peak period' around 3 AM and choose to trade during the day (9:00 AM - 6:00 PM).
Although cryptocurrency contract trading offers opportunities for high returns, the risks are also significant. Newbies must first learn the basics, practice extensively on demo accounts, and then engage in real trading with small capital. Gambling is prohibited, and investment must be done cautiously. This is my personal view, and I wish everyone can gain something in the cryptocurrency circle. Teaching a man to fish is better than giving him a fish.
In the cryptocurrency circle, regardless of whether you are a novice or expert, what you gain from me is not only financial returns but also growth in investment knowledge and experience.
During the investment process for all loyal fans, we will not only provide market analysis ideas, basic knowledge of watching the market, and various investment tools usage methods, but we will also bring you exciting fundamental interpretations, sorting out the chaotic international situation, and identifying various investment forces.
Let you become both a winner and an expert in investing!
