In the cryptocurrency circle, the discussion about perpetual contracts has been very heated. Some people strongly advise people to stay away from contracts, believing that it is a road of no return to liquidation; others believe that contracts are a shortcut to quickly accumulate original funds. So we often see such "internal fighting": those who play spot products laugh at those who play contracts as "dogs", while those who play contracts think that spot players can only "shout orders and cut leeks". So what exactly is a perpetual contract? Let's take a look together! 👇
What is a perpetual contract? 📜
Perpetual contracts, also called contracts, are a trading tool similar to futures, but the biggest difference between them and traditional futures is that they have no delivery date. You can open and close positions at any time, and you can go long (bullish) or short (bearish). For example, if you predict that the price of a certain currency will rise, you open a long order; if the price rises, you make a profit; conversely, if it falls, you lose money. Similarly, if you open a short order when you are bearish, you can still make money even if the price falls.
Why do many people play perpetual contracts? 🤔
The reasons why many people choose to play contracts can be roughly attributed to the following two points:
1. Small capital, hoping for quick returns💰
Playing spot requires long-term holding of coins and waiting for the bull market. If you use 10,000 yuan to buy spot, even if the bull market rises 3-5 times, you will only make tens of thousands of yuan. For many people, such returns do not meet their expectations at all. Moreover, there are several "what ifs":
• What if the bull market doesn’t come?
• What if a bull market comes, but the coins you bought don’t go up in value?
Contracts can magnify profits through leverage. As long as the market judgment is accurate, there is an opportunity to quickly grow funds. This is also one of the reasons that attract small-capital players.
2. Long and short positions are more “fair”🔀
Spot can only be long, and can only make money if it rises, but contracts can be operated in both directions, and there is a chance to make a profit whether it rises or falls. For many people, this makes trading more "fair" because you don't have to worry about the dealer using the low-priced chips in his hands to cut leeks, you can choose to go against the dealer.
Several key points in contract trading ⚙️
1. Leverage: a multiplier of returns and risks💥
Leverage is the most attractive aspect of contract trading, but it is also often the main reason for liquidation. Exchanges offer 1-125 times leverage, which means you can leverage a large position with a small amount of money. However, the higher the leverage, the greater the risk. For example, with 100 times leverage, a 1% price fluctuation can double your account or cause liquidation.
Many people, after suffering losses at low leverage, can’t help but increase leverage in an attempt to “quickly recover their investment”, but end up accelerating their liquidation. 🤯
2. Funding rate: the invisible part of transaction costs💸
The price of perpetual contracts is anchored to the spot price. In order to keep the two close, the exchange will adjust the funding rate:
• When the funding rate is positive, longs pay fees to shorts;
• When the funding rate is negative, short sellers pay fees to long sellers.
The payment cycle is generally once every 8 hours, and the specific amount calculation formula is:
Transaction amount (principal × leverage) × funding rate.
3. Transaction Fees: The Exchange’s “Bloodsucking Tool”🧛
The transaction fees for contract transactions are divided into two types: "taking orders" and "making orders":
• Take orders: directly execute orders placed by others, with higher handling fees;
• Place an order: Place your own order and wait for it to be executed, with lower transaction fees.
Take Binance as an example:
• The taker fee is 0.05%;
• The order placing fee is 0.02%.
The handling fee is charged in both directions, that is, it needs to be paid for opening and closing a position.
4. Liquidation: The painful cost of forced liquidation ⚠️
When the price reaches your forced liquidation price, the exchange will force the position to be closed, which is called a margin call. A margin call not only means that your funds will be reduced to zero, but you will also have to pay high handling fees. Therefore, it is recommended to set a stop loss price when opening a position, leaving enough space to avoid a margin call caused by a "pin" market. 🔒
Who is not suitable for playing contracts? 🚫
Contract trading is tempting, but it is also full of risks. If you are one of the following types, it is recommended to stay away from it:
• Poor self-control: easily driven by greed and constantly increasing leverage;
• Very competitive: Once you suffer a loss, you will want to make up for it, and the more you lose, the more competitive you will be;
• High financial pressure: using living funds or borrowed funds to participate;
• Highly emotional: Trading sentiment is easily affected by market fluctuations.
For the above types of players, contract trading is more like "giving money" to the market.
Summary: Risks and opportunities of playing contracts 📈
Perpetual contracts are undoubtedly a high-yield, high-risk trading tool. Its leverage mechanism and two-way operation mode provide small-capital players with opportunities to make quick profits, but it also hides a huge risk of liquidation. If you can stay calm, self-disciplined, and reasonably control your positions and leverage, contracts may be your opportunity. On the contrary, if you lack discipline and risk awareness, contracts may become a deep pit that swallows up your funds.
Finally, a reminder: investment is risky, so be cautious when entering the market. Although market lessons are "effective", they are often costly. 🌊
🎉 Let's get rich steadily together! Dalang Rebate Program helps you reduce costs
I hope this guide is helpful to you! If you are ready to try contract trading, you may wish to support Dalang's rebate business to reduce transaction costs and make your income more stable:
• Rebate ratio: 20% + 15%, settled every Sunday;
• After registration, please contact me to verify and use your real name;
• Invite code: V7CKIB5I
• Rebate means a discount on the handling fee. 20% means a 20% rebate on the handling fee = 20% off the handling fee
Regardless of the bull market or the bear market, we will make steady fortunes in the cryptocurrency circle, withdraw funds safely, and win through contracts! 🎉
