As the US presidential election has come to an end, the crypto market is finally welcoming the bull market after the 2024 Bitcoin halving! This is because the outgoing US President Trump openly supports cryptocurrencies, and Dogecoin (DOGE) advocate Musk also publicly supports Trump, leading to a surge of hot money flowing into the crypto market after the election. The most notable change is that the benchmark of the crypto market - Bitcoin - has started to skyrocket, rising from $67,618 to break through $100,000 since the election on 11/5 to the time of writing!
In addition to Bitcoin, other Altcoins (cryptocurrencies other than Bitcoin) have also been lifted, including DOGE, which Musk often mentions, rising from $0.15 to a high of $0.48. Also, since Trump publicly appointed Musk as the head of the new government unit "Department of Government Efficiency (DOGE)" after the election, DOGE is expected to break the $1 mark in this bull market (for more information, please refer to the hot news: Trump Appoints Musk as DOGE Leader! Bitcoin Breaks $93,000, Is the Bull Market Coming?)
If you want to learn more about Altcoins, we recommend reading:
Bitcoin Hits New High, ADA and XRP Also Soar! What Are Altcoins?
If you were a long investor in cryptocurrencies before the election, you should have already made a lot of profits. But if you weren't, don't panic, we can still choose to make money through "crypto perpetual contracts"! However, before operating, as a responsible Web3 promoter, I hope that newcomers who don't yet understand what "contracts" are will first read this article - Crypto Earning Superpower? Understand "Contracts" - A Must-Know for Crypto Newbies! (Promise me, you must fully absorb the knowledge in this article before coming back), let's follow the steps and first understand the logic and risks behind the contracts, and then take actual action to find the most suitable investment for ourselves.
If you are sure you know the risks of contract trading, but don't know how to actually operate on the exchange, don't know how to open positions, place orders? The differences between isolated margin and cross margin? This article will answer your questions, and also include an explanation of the concept of perpetual contract trading. Now let's start the hands-on perpetual contract trading tutorial!
Pre-preparation for Exchange Contract Trading
Step.1 Have a Crypto Exchange Account
Crypto contracts are a type of financial derivative in the crypto market, and can only be traded on overseas exchanges at the moment. So to engage in perpetual contract trading, you must first have an exchange account and pass KYC (Know Your Customer) identity verification to fully utilize the exchange's functions and protect your rights. However, the operation interfaces and functions of different exchanges vary slightly, and the cryptocurrencies that can be used for perpetual contract trading are also different (for example, some meme coins can be traded in Contract on Exchange A, but only spot on Exchange B), so choosing the right exchange is important.
Want to know what meme coins are? We recommend reading:
The Adventure of Dogs and Frogs: Risen to the Altar by Netizens, Decrypting the Rise of Meme Coins!
Before opening a perpetual contract, I would suggest having accounts at three exchanges. The first one should be a larger exchange with higher market cap and liquidity, which can better update the price fluctuations of various coins in real-time; the second one can be a smaller exchange that can trade more altcoins, as mentioned above, some coins may be tradable in contracts on Exchange A but not on Exchange B, so having two exchanges for perpetual contract trading is not excessive. (Friendly reminder: the volatility and risks of trading smaller coins are definitely higher than mainstream coins! Please be cautious!) The third exchange should be a domestic exchange certified by the Taiwan Financial Supervisory Commission for anti-money laundering, which will serve as our platform for New Taiwan Dollar deposits and withdrawals.
Want to know more about how to choose a crypto exchange? How to look at market cap and liquidity? We recommend reading:
Step.2 "Deposit" on the Exchange
Since the perpetual contracts are traded on overseas exchanges, we cannot directly transfer New Taiwan Dollars to purchase cryptocurrencies. At this time, we need to use a domestic exchange to convert New Taiwan Dollars into the cryptocurrency stablecoin "USDT" (hereinafter referred to as "U"). For the detailed process and operation, you can refer to our previous article:How to Buy Bitcoin? You Can Even Buy Crypto at Convenience Stores, Learn 5 Steps to Master NTD Deposits and Withdrawals!, which has a tutorial on how to "convert NTD to U".
Want to learn more about what stablecoins are? We recommend reading:
Once converted to U, you can then deposit the U into the exchange where you want to open the contract. The deposit process is actually similar to wire transfers with New Taiwan Dollars, where you need to find the deposit address (a string of numbers and letters) of the exchange. So first go to the exchange you want to open the contract on, select "Deposit" in the asset section, and choose U as the currency.
The only difference between transferring cryptocurrency and New Taiwan Dollars is that you also need to select a "network" for the transfer, which can be understood as the channel (chain) through which the money is sent. So it is very important to make sure that the "network" is the same on both the receiving and sending platforms. If you choose different chains on the two platforms, the best-case scenario is just a failed transfer, but the worst-case scenario is that your money will disappear into the vast blockchain sea and be virtually impossible to recover.
When selecting the network (chain), the system will display the estimated arrival time and transaction fee. Both the sending and receiving platforms can generally see the progress, and once the deposit is confirmed, you can proceed to the third step.
Step.3 Transfer funds to the "contract account"
After the deposit is confirmed, you can check your current funds on the platform in the "My Assets" section. Theoretically, the deposited money will appear in the "Funding Account", but based on the screenshot of the exchange shown (the second white background screenshot), in addition to the Asset Overview and Funding Account, there are also Trading Account and Financial Account. To open a contract, we need to transfer the funds from the "Funding Account" to the "Trading Account".
Transferring funds within the exchange platform is very simple. Just go to the "Funding Account" page, click "Transfer Funds", and the screen shown in the second illustration will appear. Here, select the currency U, confirm that it is a transfer from the Funding Account to the Trading Account, enter the amount you want to transfer, and click confirm - you're all set! You can now start learning how to open contracts.
Steps to open a contract on the exchange
To formally enter the steps to open a contract, after confirming that the Trading Account has funds, you can find the page of the exchange that says "Contract". The reason it is separated from buying "spot" is that the contract price is slightly different from the spot price, and when opening a contract, the "perpetual contract" price should be the main reference.
Step.1 Understand the contract types
From the illustration above, you can see that the contracts are divided into "USDT-Margined", "USDC-Margined", and "Coin-Margined". The difference lies in the "trading unit". If it's USDT-Margined, for example, when you want to long Bitcoin perpetual contracts, the Bitcoin price will be quoted in USDT. Similarly, USDC-Margined is priced in USDC, while Coin-Margined is priced in the cryptocurrency itself, meaning you need to have the cryptocurrency in your Trading Account.
In this case, we'll demonstrate how to operate the USDT-Margined perpetual contract. Additionally, a friendly reminder: while Coin-Margined contracts may sound like a good way to earn more of the cryptocurrency, if your perpetual contract incurs losses, the losses will also be in that cryptocurrency. If you're unlucky and get liquidated, the Bitcoin you originally bought at a low price may also disappear entirely. Therefore, it's recommended for beginners to use more stable stablecoins like USDT and USDC for contract trading, rather than the volatile cryptocurrencies.
If you don't know what "liquidation" is, please be sure to read this article (check the box) before continuing:
Step.2 Set the contract values
We'll open the "USDT-Margined" trading tab and start by clicking on the "BTCUSDT Perpetual" at the top to enter the trading page. After entering the page, you can also double-check if your selection is correct by looking at the "Currency Pair" on the left and the "Trading Unit" in the middle of the trading value operation - both should be in U.
After confirming everything is correct, you can start selecting the cryptocurrency you want to open the contract for in the currency pair column. If you can't find it, you can also search for the cryptocurrency name in the search bar. If the cryptocurrency you want to open a contract for is not available on this exchange platform, it will show "Spot" at the top, so be sure not to mistake it for a contract.
In this example, we'll use the veteran cryptocurrency ADA (Cardano) for the demonstration. We'll operate the "simplest" perpetual contract trading mode, but contracts actually have more than one way to play. After you're completely familiar with the simplest mode, you can try exploring other contract trading strategies.
The row of numbers on the "top" is the real-time data of ADA, with the leftmost number being the perpetual contract price of ADA on the current trading platform (the text is in red, indicating that the current currency price is showing a downward trend); the "index price" is the latest transaction price weighted by the liquidity of three or more "other exchanges"; and the "mark price" here needs special attention, because the opening and closing prices of the contract are calculated based on the "mark price", which means that regardless of opening or closing a position, the mark price is what is being looked at.
Another key concept to understand is the "funding rate". In simple terms, the funding rate is a mechanism to balance the funds between the contract market and the spot market, so that the price in the contract market does not deviate too much from the price in the spot market. The funding rate is collected every eight hours, and the "countdown" area is where the time for the next fee collection is calculated. Who has to pay this fee? The funding rate charging rule is: when the number of long positions is greater than the number of short positions, the long side has to pay the funding rate to the short side; when the number of short positions is greater than the number of long positions, the short side has to pay the funding rate to the long side. The idea is to increase the cost of opening positions for the dominant side in the contract market, so that the dominant side cannot manipulate the market.
The calculation method of the funding rate is: funding rate = total value of the held positions x funding rate percentage
For example, if the funding rate shown in the figure above is 0.011, and I open a long position today with a value of 1000 U of ADA, and the current market trend is bullish, then every eight hours I need to pay the short side a funding rate of: 1000 x 0.011 = 11 (U)
Next, let's come to the most important position for opening a contract, where you can see the "trade" at the bottom of the currency price trend, which is the place to open a position. At the bottom, you first see "isolated margin" and "3.00x", let's explain in detail what these two most important settings for opening a contract are.
When opening a contract, each position is an independent "position". When opening a position, we can choose either "isolated margin" or "cross margin". Let's do a scenario. Suppose I open a long position of 100 U of ADA today, but unfortunately the market is in a correction cycle, causing my position to be liquidated. If I had chosen "isolated margin" when I opened the position, the maximum I would have lost would be the original 100 U I opened the position with.
But if I had originally chosen "cross margin", and my trading account had a total of 300 U, then even if the liquidation price was reached, the position would not be forcibly closed. If I also believed that this was just a temporary drop and would eventually rise back up to make a profit on this position, then I could choose not to close the position, and the exchange would use all the "funds" in the trading account as margin to offset the drop. (When using cross margin, if you are in a loss position, you may see the contract yield rate data showing -100% )
Here, it is still important to note that even though choosing "cross margin" can extend the flexibility of liquidation, you should never think of holding on to the end, as there are too many (ghost) stories of people holding on to the end and losing all the funds in their trading account, with amounts beyond imagination, so when opening a position, you must be very careful in managing your position and risk, and we all need to try not to be cannon fodder.
The other "3.00x" means 3 times leverage, and "leverage" is also closely related to position risk. Suppose I open a long position of 100 U to buy ADA, and the leverage is set to 10.00x, then in this contract, it is actually equivalent to buying 1000 U worth of ADA. So if the position is indeed in an upward trend after opening, the profit will also be multiplied. But there is no free lunch in the world, the higher the leverage, the higher the risk of the position, and the smaller the loss space. If the market is in a volatile stage, then there is a good chance that just a slight shake or a needle (a sudden sharp rise or fall in the cryptocurrency, not the final opening and closing price, so it will show a thin needle on the line chart, but if it is red, it is not good, the voice of experience: everyone really should not be superstitious)
Looking further down, it is further divided into "limit order", "market order", and "take profit/stop loss" three ways to open a position. Here, I would suggest that beginners use "limit order" first, because limit order allows you to set the opening price yourself. Suppose you judge the currency price to be at a high point but still want to go long, then you can use the limit order method to place an order at the price you expect to open a position. Compared to the fixed price of market order, and the more complex take profit/stop loss, limit order is a relatively flexible and simpler way to open a position.
The price and quantity are left for the investors to judge and decide. One small point is that in addition to manually entering the price, you can also choose the "counterparty price". Suppose you want to buy, then the counterparty price will be the "lowest price that other sellers are willing to accept"; conversely, if you want to sell, then the counterparty price will be the "highest price that other buyers are willing to accept". In addition, "only reduce position" and "take profit/stop loss" can also be operated after the position is opened, and do not have to be operated at the opening stage.
Finally, as long as you decide whether you want to "long" or "short", the contract is opened! The step-by-step tutorial on how to open a contract ends here, but even after opening a position, you still need to remember to properly manage your position and risk! I wish you all can make a lot of money in this bull market!
( * The content of this article does not constitute any form of investment advice. Any investment has risks, please research and consider carefully before deciding! )
This article What is Cryptocurrency Perpetual Contracts? Step-by-step Tutorial on Exchange Contract Operation was first published on NONE LAND.
