Futures Trading

Contract Trading Tutorial: Exploring Cryptocurrency Investment Strategies

As discussions about the evolution of virtual currency progress, Bitcoin remains a standout focal point within the cryptocurrency community. This is especially true for “cryptocurrency futures trading,” which is based on Bitcoin and has garnered significant attention from numerous investors.
In this article, we will delve into the core concepts of cryptocurrency futures trading, how to engage in this type of trading, and the associated risks. By the end of this read, you should have a clearer understanding of whether Bitcoin futures trading is a suitable venture for you.

The Definition of Futures Trading and Leverage

What is futures trading?

Futures trading and leveraged trading are closely connected, meaning that futures are leveraged derivative financial products. Futures are financial instruments not exclusive to Bitcoin or other cryptocurrencies; leveraged products exist for a variety of financial assets. Uniquely, Bitcoin and most cryptocurrencies are decentralized, providing a highly speculative market for investors.

Traders can participate in the price movements of cryptocurrencies without actually owning the assets, enabling them to trade based on their market analysis. The value of a future is derived from the price of the underlying cryptocurrency, and traders can take long (buy) or short (sell) positions to profit from price volatility.

What does leverage mean in futures trading?

Leverage in trading is a mechanism that allows traders to control larger positions with a smaller amount of actual capital. This method can amplify potential profits but also increases potential risks. Leverage in cryptocurrency futures trading enables participation in significant market movements, necessitating careful risk management.

You can use leverage to trade different types of cryptocurrency derivatives, including margin trading, leveraged tokens, and futures contracts. For a closer look at the super leverage function on 8V, please refer to this article👉🏻

Differences Between Futures Trading and Spot Trading?

Futures trading allows for bi-directional trades (going long or short), whereas spot trading only permits buying at a low price and selling at a higher one.

For instance:

If you believe a coin or financial product will increase in value, you can take a long position (buy) and profit from any upward price movement.
Conversely, if you predict a decline in value, you can take a short position (sell) and profit from the falling prices.

Futures and leveraged trading enable experienced traders to potentially earn profits in both bearish and bullish markets.

Traders who are well-versed in market conditions might use futures contracts with leverage to speculate and hedge, earning money from Bitcoin futures during market downturns by adopting a strategy of ‘selling first and buying later.’

How Does Cryptocurrency Futures Trading Work?

Cryptocurrency leveraged trading is conducted through cryptocurrency exchanges. Traders can choose the type of contract, the leverage ratio, and the direction to open their position (either long or short). When the price moves in line with their expectations, traders can make a profit. Leveraged and contract trading are available 24/7, offering high liquidity to the markets.

For instance, let’s say you use 10 USDT as margin to open a position with 10x leverage to buy Bitcoin. This means you’re now holding a position worth 100 USDT of Bitcoin.

If the price of Bitcoin indeed rises by 10%, with the 10x leverage, you’ve earned a profit equivalent to 10 USDT in Bitcoin. However, if the price of Bitcoin falls by 10%, you’ll lose the entire 10 USDT margin, resulting in what’s known as a “liquidation” or “margin call”. In other words, without leverage, a 10% loss would only mean losing 1 USDT, but with 10x leverage, a 10% price movement is enough to liquidate your position.

Here’s a simple table to help everyone better understand the actual use of leverage:

Initial Capital	Without Leverage (10 USDT)	With 10x Leverage (10 USDT)
Price Increase 10%	Profit 1 USDT, Total 11 USDT	Profit 10 USDT, Total 20 USDT
Price Decrease 10%	Loss 1 USDT, Total 9 USDT	Loss 10 USDT, Total 0 USDT (Liquidation)

From the examples above, we can see that the leverage in contract trading can significantly increase both your profits and risks.

To maintain your position, most exchanges will notify you to “add more margin” if a certain percentage of loss is reached. If you fail to supplement the margin in time, the platform will forcibly close your position. Even if the price of the cryptocurrency recovers a minute later, your position will not be reinstated.

Therefore, the most important aspect of trading cryptocurrency contracts is mastering how to control your position to avoid liquidation and setting stop-loss and take-profit limits within an acceptable range for yourself. Orders without a set stop-loss can potentially lead to the loss of your entire capital.

Cryptocurrency Futures Trading: Advantages and Disadvantages

Advantages:

Potential for High Profits: Leverage in futures trading can significantly increase profits.
Ability to Go Long or Short: Traders can make money in both rising and falling markets.
Leverage Mechanism: Allows for significant growth from small initial capital; 8V exchange offers up to 200x leverage.
Risk of Loss: The maximum loss is the initial capital, which cannot be recovered once the position is closed.
Liquidity: Bitcoin futures markets often have good liquidity, allowing for substantial profits in a short time.

Disadvantages:

Increased Risk with Leverage: Leverage multiplies the risk and potential losses, including transaction fee costs.
Learning Curve: Understanding the mechanics of futures trading takes time, not recommended for beginners.
Volatility: Bitcoin’s price is highly volatile, posing higher risks, and without market knowledge, positions may be liquidated in seconds.

Types of Futures Contracts:

Perpetual Contracts:

Have no expiration date, suitable for long-term positions. The 8V exchange offers perpetual contracts with two types of trading pairs:

USDT-Margined Contracts: Settled in assets pegged to the US dollar; contracts are priced and settled in USDT.
Coin-Margined Contracts (Differential Contracts): Settled in cryptocurrency; contracts are priced and settled in the underlying crypto without the need for holding stablecoins as margin.

8V’s USDT-Margined Contract Trading Pairs:

BTC Perpetual / USDT	AVAX Perpetual / USDT	ATOM Perpetual / USDT
ETH Perpetual / USDT	MATIC Perpetual / USDT	MANA Perpetual / USDT
LINK Perpetual / USDT	BCH Perpetual / USDT	ENJ Perpetual / USDT
XRP Perpetual / USDT	ADA Perpetual / USDT	NEAR Perpetual / USDT
GALA Perpetual / USDT	LTC Perpetual / USDT	MASK Perpetual / USDT
AXS Perpetual / USDT	APE Perpetual / USDT	TRX Perpetual / USDT
GMT Perpetual / USDT	DOT Perpetual / USDT	XML Perpetual / USDT
DOGE Perpetual / USDT	EOS Perpetual / USDT	CHZ Perpetual / USDT
CFX Perpetual / USDT	ETC Perpetual / USDT	YFI Perpetual / USDT
ARB Perpetual / USDT	FTM Perpetual / USDT	ALICE Perpetual / USDT

8V’s Coin-Margined Contract Trading Pairs:

BTC Perpetual / USD

ETH Perpetual / USD

DOGE Perpetual / USD

Delivery Contracts

These have a fixed expiration date and are suitable for medium to short-term trading.

Comparison Table of Perpetual and Delivery Contracts

Perpetual Contracts	Delivery Contracts
No expiration date	Fixed expiration date
No socialized losses, automatic deleveraging is possible	Profitable traders share the losses of those who are liquidated
Pegged to the spot price of Bitcoin	Pegged to the platform’s market price
8V offers up to 200x leverage	Up to 20x leverage

Cryptocurrency Derivatives vs. Actual Cryptocurrencies

Cryptocurrency futures trading allows traders to profit from price fluctuations without actually owning Bitcoin. This can simplify the trading process but also comes with potential risks.

After reading this article, you might become interested in futures contracts, but to help everyone better understand the actual significance of these contracts, as well as how they differ significantly from buying spot, here is a simple explanation and comparison of terms.

Leverage

Leverage makes the funds you have more efficient. For instance, in the Bitcoin spot market, buying one Bitcoin requires tens of thousands of dollars, while on the 8V exchange, a USDT-margined contract allows you to trade an equivalent amount of assets with only a small amount of USDT because contracts carry leverage.

Bi-directional Trading

In the spot market, investors can only hold coins and wait for a price increase; however, because contracts profit from price differentials, they can adapt well to both bull and bear markets. Contract traders usually use more complex trading strategies, which can be used to respond to downturns to protect their asset portfolios. Miners or holders of cryptocurrency often use contracts to hedge (risk mitigation).

Price

The spot price is the immediate market price, while the contract price, though generally following the spot price, can also be influenced by other factors. The contract price is mainly composed of the spot price and the cost of holding the contract until its expiration, also known as the basis. The basis can be positive or negative, depending on changes in supply and demand.

Market Depth

The market depth of cryptocurrency derivatives has now surpassed that of the spot cryptocurrency market. When liquidity is high, price slippage is reduced, which also reduces the risk of derivatives to some extent. 8V carefully selects cryptocurrencies with high market depth to reduce users’ exposure to highly volatile derivatives.

Trading Duration

In spot trading, profits usually require a long-term price increase, which is more suitable for those with large capital and long-term traders. However, derivatives trading, due to its lower costs and the effect of leverage, is more suitable for small capital and short-term traders, especially those willing to take high risks. This makes the derivatives market more flexible and offers the potential for high returns.

Risk

The main risk of contract trading comes from the use of leverage; it is easy to be liquidated due to price volatility, leading to a loss of principal. Although spot trading does not involve leverage risk, there is still the potential loss from price declines, as you must buy at a low point and the price needs to rise to make a profit. Regardless of the trading method, risk is inevitable, so risk management is crucial.

How to Operate Futures Trading on 8V Exchange?

To start trading cryptocurrency futures, you need to create an account, deposit funds, select the type of contract and leverage ratio, and then proceed with the actual trading.

Experience futures trading on 8V Exchange now👉🏻 8V Contract Exchange BTC/USDT

Web Version Operation Steps:

Enter the 8V homepage and click “Derivatives” -> “USDT-Margined Contracts” in the top menu.
Select a trading pair, such as BTC Perpetual/USDT.
Adjust your leverage multiplier.
Set the amount of capital you want to invest; here, you can also switch between “Market” and “Limit” prices.
Choose whether you want to “Buy/Long” or “Sell/Short.”

App Version Operation Steps:

Enter the 8V homepage and click “Trade” at the bottom to enter the contract page.
Select a trading pair, such as BTC Perpetual/USDT.
Adjust your leverage multiplier.
Choose whether you want “Cross Margin Mode” or “Isolated Margin Mode.”

Cross Margin Mode:

The capital in the account is shared among all positions.

For example, if you open two positions simultaneously and one (A) is at a loss while the other (B) is profitable, in cross margin mode, the margin for both contracts is calculated together. If the loss in position A does not exceed the profit in position B, your account will maintain sufficient capital and will not be forcibly closed. However, if both positions are at a loss or one’s profit cannot cover the other’s significant loss, your capital will continue to decrease until potentially being liquidated.

Isolated Margin Mode:

The margin for different positions in the account is calculated separately.

For instance, if you have 1000 USDT in your account and position A loses 10%, which is 100 USDT, in isolated margin mode, you will lose a maximum of 100 USDT, and the remaining 900 USDT in your account will not be affected.

Set the amount of capital you want to invest; here, you can also switch between “Market” and “Plan” prices.
You can choose whether to set separate stop-loss and take-profit prices.
Stop-loss and take-profit will only take effect after you open a position and can be viewed in the current orders.

Adding Position: Will generate a stop-loss and take-profit order.
Reducing Position: Will not generate a stop-loss and take-profit order.

Choose whether you want to “Buy/Long” or “Sell/Short.”

Product Advantages of Contract Trading on 8V Exchange:

8V Exchange has competitive liquidity and market depth. It also offers a rich variety of cryptocurrency derivatives, with more than 30 trading pairs and user-friendly transaction fees. Here are the advantages of futures trading on 8V Exchange:

USDT-Margined Contract Advantages:

Intuitive profit calculation: Uses USDT for quoting and settlement, making profit calculations more straightforward.
Enhanced trading flexibility: A variety of contracts can use the same settlement currency, enhancing trading flexibility.
Saves on additional fees: USDT settlement reduces the cost of currency exchange.
Reduces price volatility risk: USDT-margined contracts lower the risk during market volatility, no need to worry about hedging contract base margin exposure.

Coin-Margined Contract Advantages:

Long-term capital accumulation: Contracts are settled in cryptocurrency, with profits suitable for long-term capital build-up.
Increased collateral value: As prices rise, the value of the collateral also increases, boosting the amount held.
Simple calculation method: Open positions with the actual cryptocurrency held as the principal by entering the desired amount of cryptocurrency, without extra contract value calculations.
Effective hedging strategies: When implementing hedging strategies, simply establish a short position in any coin-margined contract and use the contract position’s earnings to offset losses in the investment portfolio.

Considerations for Contract and Leveraged Trading:

Risk management is key to successful trading. Establish risk limit alerts, stop-loss orders, and carefully plan your trading strategy.

Do’s and Don’ts:

Closely monitor market trends.
Set stop-loss and take-profit points.
Learn to read technical indicators.
Develop a good trading mindset.
Rationally establish a trading strategy.

Don’t:

Use excessive leverage.
Engage in high-frequency trading.
Let emotions fluctuate with the market.
Invest all your capital in contracts.

Who is Suited to Contract Trading?

Contract trading offers opportunities for profit but also comes with high risk. Traders should assess their risk tolerance and trading objectives to determine if contract trading is suitable for them.

Investors seeking stable growth should generally

avoid contracts, while those seeking high-risk investments can use various derivative tools to gain higher returns. With many financial and cryptocurrency derivatives available on the market, the best approach is to directly explore the 8V platform using its demo trading feature, to better understand the platform and contract trading rules and to plan an investment portfolio that suits you.

Investing involves both gains and losses. Finally, a reminder to maintain a good attitude and read the trading rules carefully, wishing everyone successful investing.