Over my years of experience in contract trading, I have encountered traders of varying levels and found that both novice traders and experienced veterans often lack understanding of certain fundamental knowledge and rules. Therefore, at the active urging of group friends, I decided to organize and share some essential trading rules and basic knowledge that must be mastered in contract trading to help everyone trade better. Since there are many foundational aspects, this article may not cover everything at once and will be updated periodically.

Contract trading refers to an agreement between buyers and sellers to trade a certain asset at a specified price and quantity at a future date to gain profit. Investors can buy long contracts to profit from the rising prices of digital assets or sell short to profit from falling prices. Contract trading is divided into delivery contract trading and perpetual contract trading.

Delivery contracts have a delivery date, commonly including weekly, monthly, and quarterly contracts. Before the delivery date, each delivery contract's price exhibits independent trends and may differ from spot prices. On the delivery date, both long and short parties settle at the spot price (usually based on the weighted average price of the spot within a period before settlement), so as the delivery date approaches, the price tends to revert to the spot price.

Perpetual contracts have no fixed delivery date, and prices are calculated based on the latest transactions on the order book, which may also deviate from spot prices. To balance the price difference between contracts and spot prices, exchanges introduce funding rates to promote price equilibrium.

1. Exchange Rules and Common Terms

Trading Pair: A combination of two assets exchanged for each other in the crypto market, such as BTC/ETH, which means buying and selling BTC using ETH as the base currency, with the price being the exchange rate between BTC and ETH.

Order Book: A list displaying all unexecuted orders, including the bid and ask prices and quantities from both buyers and sellers. The order book is usually sorted by price from low to high (for buy orders) or high to low (for sell orders). Traders can use the order book to understand current market trading intentions and price trends. The depth of the order book represents the number of orders at different price levels. The deeper the depth, the larger the trading volume at that price level, indicating higher market acceptance of that price.

Latest Price: The price of the most recently matched order by the exchange.

Marked Price: A weighted average of the latest prices across multiple exchanges to provide a more stable price reference, reducing the risks of price volatility and market manipulation, ensuring fair and accurate contract pricing.

Transaction Fee: The commission charged by the exchange to both buyers and sellers when a trade is matched, with the commission rate varying depending on whether it is a maker or taker order. Advanced market makers can even earn transaction fees from the exchange by using taker orders.

Funding Rate: The funding rate is used to adjust the deviation between perpetual contract prices and spot prices. When the two prices are inconsistent, the exchange uses the funding rate to balance them. The funding rate can be positive or negative, with different algorithms in each exchange depending on whether the spot price is above or below the contract price. This rate is paid from one player to another, helping us understand market sentiment and direction.

Buy/Sell Mode: Buying and selling contracts, which offset each other, allowing only one direction of position at a time.

Open/Close Position Mode: This mode in cryptocurrency contract trading allows for dual-direction positions, with independent settlement for both long and short directions.

Isolated Margin: A portion of margin is set aside for each trade, locked by the exchange, preventing other trades until the position is closed. If there is a sharp market fluctuation leading to liquidation, only this portion of the margin will be lost, reducing potential risk while lowering capital efficiency.

Cross Margin: With a small portion of margin locked, the entire account balance is used as margin. By increasing leverage, the locked margin ratio can be lowered, allowing other funds to be used flexibly, thus improving capital efficiency. However, there is a risk of total account loss during sharp market fluctuations. Setting stop-loss can minimize this risk.

Margin: When trading contracts, traders must provide a portion of funds as collateral to obtain higher positions. This margin is locked by the exchange to ensure sufficient funds to maintain positions during market fluctuations. In cases of significant volatility and losses, the platform may use this margin to cover losses.

Margin Rate: An exchange risk control mechanism that triggers liquidation at 100%. Margin Rate = (Balance of this cryptocurrency in cross margin + Cross margin profits - Sell orders of this cryptocurrency - Required quantity of this cryptocurrency for option purchases - Required quantity of this cryptocurrency for isolated margin - All order fees) / (Maintenance margin + Liquidation fees)

Contract Quantity: Represents the unit quantity of a specific contract size and is also the minimum trading volume in contract trading. Given the vast differences in value among various cryptocurrencies in the crypto market, exchanges have introduced the concept of contracts for easier calculations. For example, in OK exchange, one BTC contract = 0.01 BTC.

Limit Order: Traders place the quantity and price they wish to buy or sell on the order book, waiting for execution. The exchange matches with other counterpart orders willing to buy or sell at the same price. For this type of order, exchanges charge lower fees, and market makers can earn additional commissions provided by the exchange through limit orders.

Market Order: Traders aim to quickly execute their orders by selecting the best price among already placed orders on the order book. For this type of order, exchanges charge higher fees.

Limit Price: Traders set a price within their expected range for buying and selling, triggering the exchange when there is a suitable counterpart. This may trigger limit orders or market orders.

Market Price: Traders wish to quickly execute their orders by selecting the best price among already placed orders on the order book. This will only trigger market orders.

Take Profit: Traders set their expected profit levels, triggering a closing position when the profit is reached, securing gains. Using market orders for closing positions usually incurs slippage, resulting in profits lower than the set value. Using limit orders, while avoiding slippage, can perfectly achieve profit expectations, but requires waiting for counterpart orders to execute.

Stop Loss: Traders set the maximum acceptable loss, triggering a closing position when the loss reaches a threshold to cut losses in time. Using market orders for closing positions usually incurs slippage, causing losses to exceed the set value. Using limit orders, while avoiding slippage, can perfectly achieve loss prevention but requires waiting for counterpart orders. During significant market fluctuations, there may be no counterpart orders, leading to stop-loss failures and increased losses.

Slippage: The execution of orders on the order book at the time of trade may differ from the expected price due to factors such as network latency and market depth.#BTC再创新高97k $BTC