Contract trading can be understood as a 'betting game on size', but its rules are much more complex and exciting than spot trading (buying coins directly). Its core logic is built on the following several cornerstones:
1. Core idea: Bet on future prices, not on owning the assets themselves.
Spot trading: You spend 3000 dollars to buy 1 ETH, and you truly own that coin.
Sell when it reaches 3500, making a profit of 500.
Sell when it drops to 2500, losing 500. You are trading ownership of the asset.
Contract trading: If you think ETH will rise, you 'open a long position'; if you think it will fall, you 'open a short position'.
You do not truly own that coin; you are only betting on the direction of price changes. If you guess right, you make money; if you guess wrong, you lose money.
2. Core engine: Leverage
This is the source of the magic and risk of contract trading.
What it is: Using leverage to pry large trading amounts with a small principal.
How it works: For example, you have $1,000 in principal (this is called 'margin').
You are bullish on ETH and choose to open a 20x leverage.
Your trading scale becomes $1,000 * 20 = $20,000.
If the ETH price rises by 5%, your $20,000 position will earn $1,000 (20,000 * 5%).
Relative to your $1,000 principal, the return rate is 100%.
But if the ETH price drops by 5%, your $20,000 position will lose $1,000.
Your principal is completely wiped out. This is called 'liquidation'.
Leverage amplifies your gains, but it also amplifies your losses.
3. Game referee: margin and forced liquidation (liquidation)
To ensure that winners can get their money, the exchange must prevent losers from losing everything (losing their principal and still not enough to pay), so it has designed a forced liquidation mechanism.
Margin: The ticket price for you to participate in the game (principal).
Maintenance Margin Ratio: Your paper losses cannot exceed a certain percentage.
Forced liquidation price: When price fluctuations cause your losses to nearly wipe out your margin, the system will forcibly sell your position to prevent further losses (negative balance).
This is called 'liquidation' or 'forced liquidation'.
Continuing from the previous example, if you open a long position with $1,000 at 20x leverage, the price may only need to reverse by 4-5% for you to be liquidated.
The higher the leverage, the closer the forced liquidation price is to your opening price, leaving you less room for error.
4. Game balancer: Funding Rate
This is the key design that allows perpetual contracts to be 'perpetual', with the aim of anchoring contract prices to spot prices.
Question: If there are far more long positions than short positions in the market, and everyone is wildly bullish, it will lead to the contract price being much higher than the spot price.
Solution: Funding rate mechanism.
Every period (usually 8 hours), the longs have to pay a fee to the shorts.
This will encourage some people to open short positions to earn this fee, thus suppressing the contract price and bringing it closer to the spot price.
Conversely: If there are too many shorts and the contract price is below the spot price, the shorts pay the longs.
So, if you go long, even if the price doesn't move, if market sentiment is extremely bullish, you may have to pay others every 8 hours, which will erode your profits or increase your losses.
5. The banker and organizer of the game: the exchange
The exchange plays a central role in this game:
Providing platforms and liquidity: matching buyers and sellers.
Establishing and enforcing rules: setting leverage multiples, margin rules, calculating funding rates, and executing forced liquidations.
Earning fees: Every time a position is opened or closed, the exchange charges a fee, regardless of whether the player makes a profit or loss; the exchange always makes a profit. This is the classic 'casino rake' model.
To summarize the underlying logic:
Contract trading is a zero-sum game powered by high leverage, using a margin system as a risk control measure, and balancing market prices through a funding rate mechanism (plus negative sum, as fees must be paid).
The money you earn is the money another trader loses; the money you lose goes into the pocket of another trader.
Ultimately, the underlying logic of contract trading is a game of human nature.
It trades not cold, hard candlesticks, but the fears, greed, luck, and judgments of all market participants about the future.
The vast majority of participants will ultimately become losers due to high leverage, emotional trading, and 'gambling nature', with their principal being transferred to the very few winners who can restrain human nature and strictly control risk, as well as the exchange.
In a nutshell: Contracts are risk hedging tools for professional investors, but are 'quick harvesting machines' for the vast majority of retail investors.