Bitcoin Spot Trading

Spot trading is just like buying something in your daily life. You pay with one hand and deliver it with the other hand. If I buy a Bitcoin for 6,000 USDT, then I actually own the Bitcoin. I can transfer it to my wallet or Or give it to others.

The advantage of spot trading is that the coins you buy belong to you. No matter whether the price rises or falls, the number of coins in your hand will not change. The disadvantage is that you can only make profits through an increase in currency prices. If the currency price falls, you can only sell to stop loss or hold the currency.

Bitcoin Margin Trading

Leveraged trading is a spot transaction that requires holding a certain amount of currency or USDT and conducting transactions through mortgage lending. For example: Leveraged long means that you judge that the currency is going to rise, then you borrow more USDT by mortgaging the currency or USDT in your hand, buy more coins at the current price, and wait for it to rise. After the purchase price, sell the currency and return the borrowed part, and the remainder is your profit.

Leveraged short selling, then for a certain currency, if you judge that it is going to fall, you borrow the currency through mortgage, sell it at the current price, and get USDT. When it falls, you can buy more coins at a low price with the USDT in your hand. , then the extra coins in quantity are your profits. Just return the borrowed quantity and take the profits. For example, in BTC/USDT leverage trading, if you go long, you need to borrow USDT, and if you go short, you need to borrow BTC.

Leverage and contract trading multiples are set by the exchange. We will be given a choice when trading, usually 1-100 times. Of course, Binance supports 125 times leverage. If you are bold enough and rich enough, you can choose to go to Binance and do leveraged contracts.

Bitcoin contract trading

Contracts are an upgrade of leverage and are more user-friendly than leverage. There is no need to borrow or return coins, and the operation is simple. You can operate if you have currency or USDT in your position, but there are relatively few types of contracts. Like OKEX and Huobi, there are basically no more than 10 types of currencies.

Contracts are divided into two categories in terms of time. One is the perpetual contract, which means you can hold it for a long time without liquidating your position. One type is time-limited, which is divided into: current week, next week, quarter, which means that the position will be automatically closed after the time is up.

There are two types of contracts and leverage: currency-to-crypto and USDT trading pairs. The former is settled with currency, which is what we call the currency standard. Profit depends on the increase in the number of coins, while the settlement of USDT trading pairs is settled with the gold standard.

Contract spot trading case description

Spot transaction: If user A invests 200,000 yuan (cost) to buy Bitcoin, the purchase price is 2,000 yuan, and the spot transaction can buy 100 BTC. If the price rises to 3,000 yuan, the profit will be 100,000 yuan. Profit rate: (100,000/200,000)*100%=50%.

Contract trading: You can open 100 long positions (cross position mode). If you use 5 times leverage, you only need a margin of 20 BTC, which is approximately equivalent to 40,000 yuan (cost), and you can get a profit of 100 bitcoins. Similarly, if you sell when the price rises to 3,000 yuan, you can also make a profit of 100,000 yuan. Profit rate: (100,000/40,000)*100%=250%.

It can be seen from this that the benefits of contract trading are obvious. The profit income from spot trading and futures trading is equal to 100,000 yuan, but contract trading saves most of the funds and can be freely used. In other words, it only took 40,000 yuan to achieve an investment and profit of 200,000 yuan in spot trading, which greatly increased the profitability.

If the price drops from 2,000 yuan to 1,500 yuan, assuming that there is a margin call in the contract transaction and the position is not liquidated, the same loss is 50,000 yuan. In order to prevent the liquidation, user A invests 50,000 yuan, then user A has 150,000 yuan of funds at his disposal. By using it, you can get the same price return with less money. If you buy financial products with 150,000 yuan, you can generate interest of more than 20,000 yuan at most. One can imagine the profit rate of return that the profit advantage of contract trading brings to everyone.

Of course, there are certain risks in contract trading. The profit is 5 times and the loss is 5 times. If the loss exceeds the deposit, you will be forced to sell everything, which is a "liquidation". Therefore, it is necessary to set up stop-profit and stop-loss, and to replenish margin in time to prevent liquidation.

What is the difference between leverage and contracts?

【1】. The operation method is different: Leverage is to borrow currency through the platform to over-allocate assets in the spot market. The operation process will include borrowing currency rate + transaction rate. The contract adopts the delivery contract model, which means that you can choose the leverage multiple of the product itself before making a transaction. This model eliminates the need to borrow currency to perform leverage operations in the spot market.

[2] Different definitions: Leveraged trading is the use of small amounts of funds to invest several times the original amount, in the hope of obtaining multiple returns or losses relative to the fluctuations in the investment target. A contract is an agreement in which a buyer agrees to receive an asset at a specific price after a specified period of time, and the seller agrees to deliver an asset at a specified price after a specified period of time.

[3]. The rules are different: Leveraged trading is when investors use their own funds as guarantee and amplify the financing provided by banks or brokers to conduct foreign exchange transactions, which is to amplify investors' trading funds. Futures contracts are standardized contracts designed by exchanges and approved for listing by national regulatory agencies. Holders of futures contracts can fulfill or terminate their contract obligations by taking delivery of spot goods or conducting hedging transactions.

【4】. Different characteristics: Leveraged trading has the characteristics of 24-hour trading, global market, few trading varieties, flexible risk control, two-way trading, flexible operation, high leverage ratio, low transaction fees, and low market entry threshold. The characteristics of futures contracts are small and large, two-way trading, no need to worry about performance issues, market transparency, tight organization, and high efficiency.

When trading contracts, if you want to use leverage, you need to submit a performance guarantee (guarantee), which is a transaction guarantee. Trading guarantees generally account for a small part of the total contract value. Traders can use relatively small amounts of virtual funds to control contracts of huge value, which can give traders great flexibility and high trading efficiency.