An essential guide to derivatives trading

What is derivatives trading?

Derivatives trading refers to the agreement between a buyer and a seller to trade a certain asset at a specified price and quantity at a certain time in the future. More specifically, derivatives trading in crypto refers to futures trading based on crypto assets, like expiry futures or perpetual futures.

Traders can earn from rising crypto asset prices by buying or 'going long', or from crypto asset price declines by selling or 'going short'.

What are the types of orders and when to trade?

In derivatives trading, there are two main types of positions: long (bullish), and short (bearish).

Combined with buying and selling, respectively, the trading directions of opening and closing positions are combined.

Opening a position involves: 'Buy' to open a long position and 'sell' to open a short position.

Closing a position involves: 'Sell' to close a long position and 'buy' to close a short position.

If you don't have any position and predict that the underlying token will rise, you can choose 'buy' to open a long position.

After that, you already have a long position. When you predict that the underlying token will fall, you can choose to sell to close the long position.

What are the common fields when placing an order?

Trading products: perpetual, expiry

• Perpetual futures: Perpetual futures are rolled over automatically before their expiration dates.

• Expiry futures: The expiry futures has a fixed settlement period, which can be the current week, the next week, the current month, the current quarter, and the second quarter.

Contract unit: U-margined, crypto-margined

• Crypto-margined: Also known as a reverse contract, the pricing unit is USD, and the currency used as collateral assets and calculation of profit and loss is crypto (such as BTC, ETH, etc.). Users need to hold the corresponding underlying crypto to participate in the transaction of this type of contract, such as a BTC-margined perpetual futures implying the user needs to transfer BTC as collateral assets.

• U-margined: Also known as forward contract, the pricing unit is USDT, and the currency used as collateral assets and calculation of profit and loss is USDT. Users only need to hold USDT to participate in the trading of various types of contracts.

Position mode: cross margin, isolated margin

• Cross margin: In the cross-margin mode, all the available balance in your account will be used as your position margin.

• Isolated margin: In isolated margin mode, the margin locked when placing an initial order is the maximum loss for this position.

Direction

• Open a long position, open a short position.

Leverage

• The larger the leverage ratio, the higher the possible return, and the greater the risk.

Order type

• Limit order: A limit order means the user sets the order quantity and the highest acceptable buying price or the lowest selling price. When the market price meets the user's expectations, the system will execute the transaction at the best price within the limited price range.

• Market order: Market order refers to the user's immediate execution of buying or selling at the best price in the current market to achieve the purpose of a quick transaction.

Amount

• You can choose the order amount unit as a contract unit, the current token, or USDT.

• If there's not enough USDT in your trading account, you won't be able to place the order due to insufficient balance. You may place the order by adjusting the leveraging or funding more USDT into the trading account.