What is Contract Trading?
Cryptocurrency contract trading is a type of derivative investment product where the buyer and seller agree to trade a certain underlying asset at a predetermined price on a specific future date. Contract products are mainly divided into two categories: delivery contracts and perpetual contracts.
Contract trading supports two-way trading. If the price is expected to rise, investors can go long (buy); if the price is expected to fall, they can go short (sell). Contracts can also be used for hedging or arbitrage strategies to help manage risk.
The concept of cryptocurrency contracts originates from traditional derivatives markets. For example, with crude oil futures contracts, if both parties agree to a contract at $80 per barrel, the buyer must purchase the oil at that price on a future date, and the seller must deliver the oil at that price. This mechanism of locking in future prices forms the basis of modern derivatives trading.
In the digital asset market, the underlying asset is cryptocurrency rather than commodities. In most cases, investors do not fulfill physical delivery terms but trade contracts before expiration. For perpetual contracts, positions can be flexibly opened and closed to profit from price fluctuations.
Features and Risks of Contract Trading
Contract trading allows investors to earn profits from market rises and falls by taking long or short positions.
Unlike spot trading, contract trading uses a margin and leverage system, where traders can control larger positions with a small amount of capital. For example, with 10x leverage, a 1% price movement could result in a 10% gain or loss. This example is for illustrating how price fluctuations affect profits and losses; actual results may vary due to trading fees, funding rates, and other costs.
However, leverage is a double-edged sword that amplifies both potential gains and potential losses. Investors should carefully assess their risk tolerance and use leverage prudently.
Types of Contract Trading
There are mainly two types of contract trading in the cryptocurrency industry: USDT/USDC-margined contracts and coin-margined contracts. PerpVia V1.0 focuses on providing USDC-margined perpetual contracts, avoiding the complexity and potential risks associated with multi-currency margin requirements, making your trading more worry-free.
• USDT perpetual contracts and USDC perpetual contracts are settled and quoted in stablecoins USDT and USDC respectively. These contracts have no fixed expiration date, making them ideal for traders who value flexibility. Popular pairs include BTCUSDT and ETHUSDC. Contract value is quoted in fiat currency, trading costs are determined by funding rates, and position sizes are clearly visible.
• Coin-margined contracts are quoted and settled in cryptocurrencies such as BTC or ETH, and are divided into two types: perpetual contracts with no expiration and delivery contracts settled on a fixed date (e.g., BTCUSD 0628).
How Contract Trading Works
Investors deposit margin and use leverage to amplify their position size. Then, based on their price expectations, they can choose to go long (buy) or go short (sell) and close their positions at the right time to lock in profits or losses.
1. Choose Contract Type and Direction
Contract Types: USDT-margined, USDC-margined, or coin-margined contracts (perpetual or delivery contracts)
Trading Direction:
• Go long (buy): open a position expecting the price to rise.
• Go short (sell): open a position expecting the price to fall.
2. Set Leverage and Place Order
Select leverage multiplier (e.g., 5x, 10x, 20x). Higher leverage can amplify gains but also increases risks.
Enter price and quantity. The system will automatically calculate the required margin.
Order Types:
• Limit order: executed at a specified price.
• Market order: executed immediately at the best available price.
• Conditional order: executed only when preset conditions are met.
3. Choose Margin Mode
• Cross margin: all positions share the same margin balance. This mode suits hedging strategies but carries the risk of all positions being liquidated simultaneously.
• Isolated margin: each position uses independent margin, isolating risk and making it easier to manage risk exposure for individual trades.
Note: Margin mode can only be switched when there are no open positions.
4. Position Management and Risk Control
Real-time monitoring: closely track unrealized P&L, margin ratio, and other key indicators.
Adjust positions:
• Set take profit/stop loss: automatically close positions when preset profit or loss levels are reached.
• Manual close: close part or all of a position at any time.
Add margin: if your margin ratio is too low, you need to add margin to avoid liquidation.
5. Delivery (Delivery Contracts Only)
If delivery contracts are not closed before expiration, they will be automatically settled at the delivery price (e.g., BTC index price) on the expiration date. Profits and losses will be settled accordingly.
6. Funds Settlement
After closing a position or settlement, profits and losses will be credited to your contract account balance. You can withdraw these funds or continue trading.
Example with Bitcoin Contract:
a. Initial Conditions
• User A’s capital: 10,000 USDT
• BTC price: 50,000 USDT
• Leverage: 10x
• Contract position: 2 BTC (worth 100,000 USDT)
Actual required margin = Contract value ÷ Leverage = 10,000 USDT (same as user’s principal).
b. Market Movement
• Bitcoin rises by 20% → 60,000 USDT
• New position value: 2 BTC × 60,000 = 120,000 USDT
c. Closing Position
1. Proceeds from closing: 120,000 USDT
2. Net profit = 120,000 – 100,000 = 20,000 USDT
3. Return on Investment (ROI) = Profit ÷ Principal = 20,000 ÷ 10,000 = 200%
d. Result
By using leverage, User A achieved a 200% return while BTC price increased from $50,000 to $60,000 (a 20% increase).
Note: The above is a theoretical example. Actual results may vary due to trading fees, funding rates, slippage, and real-time market fluctuations.
Disclaimer and Risk Warning
All trading tutorials provided by PerpVia are for educational purposes only and should not be considered financial advice. The strategies and examples shared are for reference only and may not reflect actual market conditions. Cryptocurrency trading involves significant risks, including the potential loss of funds. Past performance does not guarantee future results. Please conduct thorough research and understand the risks involved. PerpVia is not responsible for any trading decisions made by users.