Something that can make people rich instantly, or make them lose everything overnight. Some people can retire the next day by relying on it, while others can choose which building to jump from to die more easily because of it. What is it that makes people love and hate it? What exactly is a perpetual contract? Today, let me tell you what contract trading is in the most straightforward way. This article mainly introduces the following contents:

Long Contract

Short Contract

Perpetual Contract

Why can contracts be leveraged? What is the difference between going long and going short?

Funding Rate

The phrase "Cherish life and stay away from contracts" is also very famous in the currency circle. You often hear people telling everyone not to play with contracts. The reason is that although contracts can make people make a lot of money, on the contrary, they can also make people lose money and go bankrupt. Some friends lost thousands of dollars in a second because they opened a contract with a super large multiple. When they clicked to search, the money was gone. I suggest that novices do not play with contracts.

Long Contract

First of all, stocks can be simply divided into two trading modes, one is called spot, and the other is the contract we are going to talk about today. In stocks, contracts should be called futures. Does spot need to be explained? It means that you buy as many coins as you have money. For example, one Ethereum is more than 1,200 US dollars now. If you have 600 US dollars, you can buy half of Ethereum. It should be easy to understand. This is spot. Currency contracts generally refer to perpetual contracts. I will tell you how to play it in the most colloquial way. Today, suppose your principal is 3000U (U is the abbreviation of USDT, 1U is equivalent to 1 US dollar), and the current price of Ethereum is also 3000U. If you use 3000U to buy Ethereum, you will just buy one, right? This should be easy to understand. Let's assume that you open a contract. There are many multiples for you to choose from, including two times, three times, five times, ten times, 15 times, and even 125 times in some exchanges. As I just said, if your principal is 3000U, then if you open a 15x contract, your principal is equal to 3000U multiplied by 15, which is 45,000U to buy Ethereum, so you will buy 15 Ethereum, right? The price of virtual currency is always fluctuating. If the price of Ethereum goes from 3000U to 2900U, it means that you have lost 3000U minus 2900U multiplied by 15, which equals 1500U. If the price of Ethereum drops to 2800U, it means that you have lost 3000U, and your principal is only 3000U. So if the price of Ethereum drops to 2800U, your principal is gone, it’s over, it disappears, and it goes straight to zero. You have nothing. This is what we often hear about as a margin call. A margin call means that your contract has been blown up, which means that your principal of the contract, 3000U, is gone. If the price of Ethereum goes from 3000U to 3300U, you have earned 3300U minus 3000U multiplied by 15, which equals 4500U. The principal plus the profit is 7500U in total.

Short Contract

One day in the cryptocurrency world is like ten years in the real world. The price fluctuation of a coin is usually very exaggerated. A common phenomenon on the K-line is called a pin, which means that the price of the coin drops down and then comes back, or rises up and then comes back. As long as the price of the coin hits your strong screen price even for a moment, your position will be instantly liquidated. It is often the case that the day before was fine and you made a little money, but when you wake up at night, it is directly reduced to zero. It is inexplicable, so it is best to set up both the take profit and stop loss first, especially the stop loss. Basically, you must bring a stop loss when you open a position, so as not to give money to others. The principle of contracts based on futures is the same, and you can also go long or only go short. To explain these two things simply, if you think the price of the coin will be higher than it is now in the future, so you buy it now and sell it in the future, this behavior is called going long. On the other hand, if you think it will fall in the future, then you can go short. The principle of going long should be very easy to understand without explanation, that is, buy at a low price and sell at a high price. Going short is a bit more complicated, it is selling high and buying low. What does it mean? How can you sell it if you don’t have anything in your hand? Can you borrow from others if you don’t have it? You don't know who to borrow from, but the exchange will help you anyway. In fact, if you think that the price of Ethereum will drop from 3000U to 2800U today, you can short at 3000U, that is, take an Ethereum from someone, sell it to him immediately after taking it, and then buy another Ethereum and return it to that person. It seems that the person just did not move at all, and it is still an Ethereum, but you have earned 200U from the difference, right? It is 3000U minus 2800U, which is the so-called shorting, but this is the principle. You don't really borrow when you borrow, sell when you sell, or buy when you buy. It's just the principle. The exchange will help you realize it. Anyway, if it falls, you make money, and if it rises, you lose money. The operation is not that complicated. You just need to press the sell or short button when the price is 3000U, and then when it reaches 2800U, you can close the position with one click, and you will earn 200U. If you add leverage, you can multiply it by the corresponding leverage multiple.If you don't set a stop loss, from a risk perspective, the risk of shorting is much greater than that of going long. Suppose you shorted an Ethereum, and the Ethereum price went from 3000U to zero this year, then you can only make 3000U at most, but if the Ethereum price goes up, you will lose money. The key is that it has no upper limit to its rise. It may go up to 10,000U in the future, right? Then the loss for you is infinite, unlike going long. Suppose you go long an Ethereum when it is 3000U, and the Ethereum price goes down to zero, you will only lose 3000U, but the rise is unlimited, so shorting is used by experienced traders.

Perpetual Contract

When doing contracts, always remember that if the price reaches your expected value, remember to close the position. Closing a position means selling your contract. If you don't sell it, the money will never come to us, and there will only be a profit on the books. We call this selling action closing a position. There is also something that needs to be mentioned called the forced liquidation price, the full name is forced liquidation. This forced liquidation price tells you at what price the currency reaches, your contract will be forced to close by the system, that is, it tells you at what price the currency price reaches, you will be directly liquidated, that is, return to zero, and your principal will be gone. The contract we just introduced is called a perpetual futures contract, which means that as long as you don't blow up your position, you can hold this contract forever, allowing you to infinitely magnify your profits, but it also magnifies the risk of loss. The larger the multiple, the higher the chance of liquidation. This is also the reason why we usually don't want novices to play contracts, because if your multiple is larger, it is very easy to blow up.

Why can contracts be opened in multiples? What is the difference between single position and full position?

If you go long, your principal is 100U, and you open 10 times, which means you borrow 900U from the exchange. If you go short, you originally borrowed 1 ether, but you use 10 times leverage, which means you borrowed 9 more. The principal I just mentioned, the professional name of the contract is called margin. After all, the exchange has to give you some deposit when lending you money. It is not doing charity, right? Perpetual contracts are divided into two modes, one is called full position and the other is called position by position. Position by position means that each contract is calculated independently, that is, each position is separate and has no relationship with each other. Suppose you open three long contracts, but they are all opened at different prices. If one of them is liquidated, the other two will not be affected. Full position means that the margin of all contracts is calculated together, which is less likely to be liquidated, but if it is liquidated, the money in all contract accounts will be gone. So the difference between them is that the advantage of position by position is that each position is calculated separately, and the liquidation of this position will not affect other positions. The disadvantage is that the space for operation is relatively small. It is not easy to get liquidated with full position, and your margin space is relatively large, but the disadvantage is that if you get liquidated, you will have to report all the money in your contract position. If you are a novice in contract trading, I personally recommend that you trade one position at a time, so as to avoid your full position being liquidated and directly returning to zero.

Funding Rate

What is this funding rate? I don’t really want to explain it, because I guess you don’t understand it. In plain words, some people will go long and some will go short in this market, that is, there will be long and short parties, and when one party is more, the contract price will deviate from the current real currency price, then the party with more people will pay a bonus to the other party, that’s probably what it means.

Contracts are risky, so be cautious when investing