Many siblings are interested in contract trading in the cryptocurrency market but don't know where to start. Today, I will share some basic knowledge and practical tips about contract trading. Newbies, 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 don't need to actually own these cryptocurrencies, as long as you can correctly predict the price trend, 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: There is no expiration date, and they can be held indefinitely. Their price is anchored to the funding rate and the spot price, with the funding rate being settled every 8 hours, and both long and short parties paying fees to each other based on the rate.
2. Delivery contracts: They have a fixed expiration date and will be settled or physically delivered 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 the contract. Each contract of different cryptocurrencies represents different values. For example, in the BTC/USDT perpetual contract, 1 contract may equal 0.001 BTC.
2. Leverage: It allows you to control a large investment with a small amount of capital, but both gains and risks are magnified. For example, with 10x leverage, a principal of 1000 yuan can operate a contract worth 10000 yuan. However, the higher the leverage, the greater the risk of 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 50000 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 and locking in profits or losses. You can choose to close at market price or limit price.
5. Liquidation: When your margin rate falls below the maintenance level, the system will automatically close your position to prevent further losses.
4. Risk control❗
1. Control leverage: Beginners should try to keep it within 5x. The lower the leverage, the smaller the risk of liquidation. With 10x leverage, a 10% drop in price might lead to liquidation; with 5x leverage, a 20% drop is needed for liquidation.
2. Set stop-loss: Individual 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 principal and have a chance to turn things around.
3. Choose mainstream coins: Mainstream coins (like BTC, ETH) have a higher cost of manipulation, and their prices are relatively more stable, with fewer price spikes.
4. Be mindful of trading times: Try to avoid 'liquidation peak periods' around 3 AM and choose to trade during the day (9:00 AM - 6:00 PM).
Although contract trading in the cryptocurrency market offers opportunities for high returns, the risks are significant. Beginners must first learn the basic knowledge, practice extensively on a simulated account, and then engage in real trading with small amounts. Gambling is forbidden, and investment should be cautious. The above is my personal opinion. I wish everyone success in the cryptocurrency market.
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