No, no, no, it's important to repeat it three times.
There are three main parts: whether following signals is worthwhile, contract details, and the truth about making money with contracts. Let's take it slow below!
Is following signals worthwhile?
There are famous influencers on Binance Square, such as Zhu Yidan, Yan Chi, and Binance has awarded them. They definitely have skills, but they have still blown up huge positions in short-term trading. Other famous figures like Bit Lü Bufen, Wall Street Jiumei, and **Wu Yanzu, although they have many followers, they missed the opportunity during the US election and held on until liquidation, making serious mistakes in their overall predictions.
Moreover, those unknown signal teachers should not be disregarded. Don't just look at how much people are making on the square recently; it's just a good market. They might think they have great skills. When the market turns bad, you'll see who is swimming naked! Look at the chart, who wouldn't end up the same way!
Furthermore, these signal teachers are not really on your side. Setting aside the smaller exchanges that exploit traders, these signal teachers’ income is divided into two parts: one from rebates and the other from dividends.
How is the rebate generated? It’s still from the transaction fees that occur when you open and close a position. Therefore, to increase rebate income, the teacher encourages you to open contracts daily, regardless of market conditions; otherwise, they won’t earn anything!
Dividends are the profits generated by the exchange's built-in signal following. For winning positions, a 10% commission is taken, while losing positions yield nothing, seemingly combining profits and losses!
In fact, there are major loopholes, like opening both long and short positions on the same asset. First, close the profitable positions to take the dividends, and hold onto the losing ones! Since signal providers have relatively small positions but large amounts in follow-ups, they ultimately get liquidated, but the dividends can cover the losses, and they might even profit.
One last point, general signal teachers also want you to make money; the longer you live, the more rebates and dividends they can earn. However, the market is not static; they can only try to keep you alive a bit longer, but whether you profit or not is not their concern.
Details of the contract.
For short-term contracts, you must pay attention to the issue of transaction fees!
Normal users' transaction fees: opening a position at 0.02%, closing at 0.05%. (If your account has BNB, you can get a 25% discount. If your trading volume is high, you can upgrade to VIP for further fee reductions.) If you trade frequently, you can use another account for contracts, register that account, earn your own rebates, and save some money.
Funding rate: transaction fees are calculated every 8 hours (shown at the top right of the contract page) to balance the strength of longs and shorts in the market. For example, 0.01% means that longs pay shorts 0.01% of the total position as compensation; if it's -0.01%, shorts pay longs. However, in most cases, the market favors longs!
For instance: taking the most common Bitcoin as an example, open a position of 100U with 100x leverage to go long. At this time, your position size is 10,000U, which is the basis for later calculations.
When you open a position, you incur a transaction fee of 10,000 * 0.02% = 2U; after one day, accumulating funding fees every 8 hours, Bitcoin has a rate of 0.01%, totaling 3 times = 10,000 * 0.03% = 3U; if the Bitcoin price remains unchanged, when you close the position, you pay 10,000 * 0.05% = 5U.
Finally, to summarize. For a contract opened with 100U, after 24 hours of trading without any price change, you end up paying 10U in fees.
Frequent short-term trading, what can you win with? There's a quant trader who ran a strategy for 8 years, claiming a gross profit of 10,000 times, but in reality, it was only 860 times. All profits were washed away by fees!
Advantages of going long: the potential for unlimited profits, but under normal circumstances, you have to keep paying funding fees, which means returns are relatively slow.
Advantages of going short: relatively quick returns, and you continuously earn funding fees, but there is a ceiling to short profits; to make big money, you must roll over positions.
The truth about making money with contracts.
Why are there so many stories about people making big money from contracts in the market? There are indeed some, like the recent wealth-freeing Bit Langlang, and the genius kid Liangxi from 2021, who turned 1,000 into 4,000.
So what do they have in common? They profit from one-sided markets! In a choppy market, fluctuations of a few points won't let you make money, because that's just how the market works.
So how did Liangxi end up losing everything and still owe hundreds? Wasn't it still due to losing in a choppy market? It goes back to those award-winning influencers on Binance; they have no issues with their skills, but they are just playing in a choppy market, lacking energy, their capital is worn down, their mindset collapses, and with one wrong move, they get liquidated.
Look at the chart below, and compare it with the one at the top. At the beginning of the market, just jump in; even a fool knows that going long is the way to go. Buying in directly makes money, and you won't get trapped at all. You don't need to open positions frequently, just hold on and you will profit, right?
90-95% of the market is in a choppy state, while only 5-10% is worth trading in a one-sided market. You must be patient!
Lastly, let me add that serious traders only engage in Bitcoin contracts and tolerate Ethereum. Why is that?
Bitcoin is relatively decentralized with holdings spread out, making its movement more stable; in contrast, other altcoins are heavily centralized, with large players and manipulators, clear trading, directly crushing small players.
I previously encountered FTM, where the coin price dropped from 3 to 1U, then immediately spiked back to 3U, a tripling effect. If you went long, the lack of depth and liquidity could trigger an early stop-loss, resulting in a huge loss; if you shorted, adding leverage could lead to immediate liquidation.
I have also encountered coins that saw everyone shorting and going long, where the funding rate became 4% every 4 hours, totaling 24% a day; you wouldn't earn a dime.
There are also coins with imbalanced buy and sell forces in the market, like the former Luna and the recent TRB. A well-known blogger on Weibo, called Big Brother, had a 3 million position shorting, but when it reached the top and started to drop, the exchange de-leveraged and liquidated his position, making him furious and constantly trashing Binance.
Another point is liquidation and stop-loss. If you really can’t let go, place your stop-loss slightly above the liquidation price; if luck is on your side, you might still save 10% of your funds. Watching your position get liquidated directly is the most foolish thing!
However, in some extreme scenarios, especially when altcoins spike sharply, even if you set your stop-loss high, you can still get liquidated; there isn't much difference. This is because altcoins generally lack depth and liquidity, and the market is driven by counterparty trades.
Altcoin contracts are only suitable for one-sided markets, main uptrends, and long-term positions of 2-3 times. For others, it’s better to skip it and stick with Bitcoin.