Before delving into the details, it is important to understand the key terms used in cryptocurrency futures trading:
Futures contract: an agreement to buy or sell a specific amount of cryptocurrency in the future at a predetermined price. These contracts are traded on specialized exchanges and have standard terms, such as expiration date and contract size.
Margin: the amount of money that must be deposited to open and maintain a position in a futures contract. Margin serves as collateral to cover potential losses and can be increased or decreased depending on the asset's price movement.
Leverage: the ability to control a larger position than the amount deposited as margin. Leverage allows traders to increase potential profits but also amplifies potential losses.
Long position: buying a futures contract with the expectation of a price increase. Traders open long positions when they believe the asset's price will rise.
Short position: selling a futures contract with the expectation of a price drop. Short positions are opened when traders expect the asset's price to fall.
Liquidation: forced closure of a position by the exchange if the margin becomes insufficient to maintain the open position. Liquidation occurs automatically and can lead to significant losses for the trader.