What is Futures Trading?
Futures Trading is a virtual contract product settled in USDT, each contract represents a certain amount of digital currency (for example, BTC/USDT contract, each contract represents 0.001 BTC), investors can buy long contracts to obtain the income of virtual digital currency prices, or sell short to obtain virtual digital currency income.
Leverage
Leverage allows for significantly enhanced capital efficiency in futures trading. When trading futures contracts, you only need to commit a small portion of the total contract value to open a position.
To illustrate:
- In spot trading, if the current market price of 1 BTC is $30,000 USDT, you would need to spend $30,000 USDT to acquire 1 BTC.
- In contrast, in futures trading with 100x leverage, you might only need to deposit $300 USDT as margin to control a contract worth 1 BTC.
This leverage magnifies both potential profits and losses. While it allows traders to access larger positions with less initial capital, it also increases risk due to the amplified exposure to market movements. Therefore, it's crucial for traders to manage risk effectively when utilising leverage in futures trading.
The choice between long and short positions
If you hold USDT in spot, all you can do is buy the currency. When the market continues to fall, you cannot make a profit by buying the currency;
However, in the futures contract, if you hold USDT, you can choose to go long or short according to the market conditions. When the market continues to fall, you can choose to go short to make a profit. When the market continues to rise, you can choose to go long and make a profit.
The differences between Cross Margin and Isolated Margin
Cross Margin:
- In Cross Margin mode, the entire balance of the futures account is used as collateral.
- If a position in Cross Margin mode is liquidated (forcefully closed), it can affect the entire account balance because all funds are pooled together to cover margin requirements.
- Cross Margin can help mitigate the risk of individual position liquidation by using the entire account balance to support all open positions.
Isolated Margin:
- In Isolated Margin mode, specific amounts of margin are allocated to individual positions.
- Each position is isolated from others, meaning if one position is liquidated, it only affects the margin allocated to that particular position.
- The remaining balance in the account that is not allocated to any position (unused margin) is not affected by the liquidation of other positions.
Take Profit and Stop Loss
Take Profit (TP) and Stop Loss (SL) are types of strategy orders. Users can pre-set prices or percentages for TP and SL. When the market reaches these prices or when the floating profit or loss reaches the set percentage, the system automatically places the order.
Market Price TP/SL:
When the latest price reaches the pre-set TP or SL trigger price, a market order is placed to close the position. Due to market fluctuations, the actual execution price may deviate from the set price.
Limit Price TP/SL:
When the latest price reaches the pre-set TP or SL trigger price, a limit order is placed to close the position. Depending on market conditions, the order may not be filled or only partially filled based on the specified order price.