Preface
With the rapid development of the cryptocurrency market, futures trading has become an important way for many investors to profit. Futures trading allows users to buy and sell without owning actual assets, and to profit from market fluctuations. For novices, it is crucial to understand the basic concepts, operation process, and risk management of futures trading.
Basic Concepts
1. Long and Short
- Long position: Predicting a price increase, buying first and then selling to make a profit.
- Shorting: Predicting a price drop, selling first and then buying to profit.
2. Margin and Leverage
- Margin: The minimum funds required to open a contract.
- Leverage: Allows users to control contracts of greater value with a small amount of capital. For example, 10x leverage means that a contract worth 1000 USDT can be controlled with 100 USDT.
3. Trading Fee
- Each opening and closing operation will incur a handling fee, and the fee standards may vary from platform to platform. Understanding the fee structure is crucial for calculating actual returns.
How to trade?
1. Select perpetual contract and trading pair
- Log in to the Gate.com official website.
- Click on the ‘Futures Trading’ option in the top navigation bar, and select ‘Perpetual Contract’ or ‘Delivery Contract’ to enter the Futures Trading page.
- Click the trading pair button in the upper left corner of the page, and select the trading pair of the currency you want to trade.
2. Fund Transfer
In the classic account mode, click the ‘Transfer’ button in the lower right corner to transfer assets from the spot account to the futures account.
3. Select position mode and adjust leverage multiplier
- Choose between full margin or isolated margin mode.
- In cross mode, all cross-margin trading pairs share the position margin; in isolated mode, each trading pair has an independent position, and the position sets the leverage ratio (1-125 times). The higher the leverage ratio, the lower the required margin, but the higher the risk of liquidation.
4. Select the order type and confirm the opening direction.
- Place orders with limit price, market price, conditional order, or advanced limit order.
- Limit order trades at the price and quantity specified by you; market order trades quickly at the best market price; stop order and advanced limit order are executed when the trigger price is reached.
- Enter the price and quantity, confirm the opening direction, and click ‘Buy Long’ or ‘Sell Short’ to place the order.
5. Close position
- Click ‘Positions’ at the bottom of the page to view your position information, track liquidation price, or set take profit and stop loss.
- When the expected profit is reached, choose market price, limit price, or one-click liquidation to complete the closing operation.
What is liquidation?
In futures trading, liquidation occurs when a user’s account margin is insufficient to maintain a position and reaches the danger line, at which point the system will automatically handle the risk position to prevent further losses. In short, liquidation is a forced liquidation measure taken by the system to prevent a negative balance in the account.
What is the reason for liquidation?
- High Leverage: High leverage can not only amplify profits but also amplify risks. Even a slight market fluctuation can lead to insufficient account margin and trigger liquidation.
- Market volatility: The cryptocurrency market is highly volatile, and prices may fluctuate significantly in a short period of time. If the market fluctuates in a direction unfavorable to the position, the risk of liquidation will significantly increase.
- Failure to timely add margin: When market fluctuations result in insufficient margin, if margin is not added in a timely manner, the system will force liquidation to prevent further losses.
How to avoid liquidation?
To reduce the risk of liquidation, Gate.com users can adopt the following strategies:
Choose leverage ratio reasonably
The higher the leverage, the greater the risk. Beginners are advised to start with lower leverage, so that even if the market fluctuates greatly, you will have more time to adjust your position or add margin.
Pay close attention to the mark price
Gate.com futures trading uses the mark price to calculate profit and loss and margin ratio. The mark price is calculated based on the spot index price and the premium index, and it is the current fair price in the futures market. Pay close attention to changes in the mark price, which helps determine when adjustments to positions or additional margin are needed.
Set stop-loss and take-profit orders
Setting stop loss and take profit orders in advance during trading can automatically execute them when the market suddenly fluctuates, preventing losses from expanding or locking in existing profits. This feature is especially suitable for users who cannot constantly monitor the market.
Proper Position Management
Avoid putting all your funds into a single contract. Diversifying positions can reduce the impact of market volatility on your account and thereby reduce the risk of liquidation.
Timely additional margin
Gate.com provides contract liquidation warning alert function, users can set to receive notifications when approaching the risk of liquidation. This helps users to adjust their strategies or add margin in a timely manner before unfavorable market changes occur, effectively preventing liquidation.
Summary
Futures trading, as an important investment method in the cryptocurrency market, allows users to profit from market fluctuations through long and short positions without owning actual assets. Understanding the basic concepts, operational processes, and risk management of futures trading is the key to success for every investor. This article provides a detailed introduction to the core elements of futures trading, including margin, leverage, transaction fees, etc., and provides specific operational steps, from selecting trading pairs to closing positions. At the same time, it proposes effective risk control strategies for liquidation risks, such as choosing leverage wisely, closely monitoring the marked price, setting stop-loss and take-profit orders, managing positions reasonably, and timely adding margin.
