Understanding Contract Trading Basics
Contract trading, particularly perpetual contracts, represents one of the most dynamic yet high-risk instruments in crypto markets. While offering potential for significant gains, it demands thorough understanding before participation.
Core Concepts Explained
Long (Buy) Positions
- Betting on price increases
- Profit when asset rises in value
Short (Sell) Positions
- Betting on price decreases
- Profit when asset drops in value
Liquidation
- Occurs when losses exceed margin
- Exchange closes position automatically
- Prevents negative balances (typically)
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Mechanics of Leveraged Trading
Example Scenario:
- $100 USDT margin
- 5x leverage
- $500 position size
Profit Calculation:
10% price rise × 5x leverage = 50% ROI ($50 profit)Loss Calculation:
20% price drop × 5x leverage = 100% loss ($100 margin)Key Insight:
Exchanges typically liquidate before full loss (around 18-19% drop in this case) to cover fees.
Practical Trading Walkthrough
Platform Navigation
- Access OKX mobile/desktop app
- Select "Contract Trading"
- Choose BTC/USDT perpetual contract
Contract Types Compared
| Feature | USDT-Margined | Coin-Margined |
|---|---|---|
| Margin Currency | USDT | BTC |
| P&L Calculation | USD terms | BTC terms |
| Best For | Short-term | Long-term BTC holders |
Position Management
- Isolated Margin: Limits risk to specific position
- Cross Margin: Uses entire account balance (higher risk)
- Recommended: 5-10x leverage for beginners
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Risk Management Essentials
Must-Use Tools:
Stop-Loss Orders
- Automatic exit at predetermined loss
- Example: 2% price drop triggers closure
Take-Profit Orders
- Locks in gains automatically
- Example: 5% rise secures profit
Pro Tip:
Partial position closing lets you withdraw principal while letting profits run.
Key Considerations
- Volatility Warning:
Crypto markets frequently swing 5-10% daily - Leverage Dangers:
50x means 2% move against you = 100% loss Psychological Factors:
- Avoid "revenge trading"
- Stick to predefined strategies
FAQ Section
Q: Is contract trading suitable for beginners?
A: Not recommended. Master spot trading first before considering contracts.
Q: What's the minimum capital required?
A: While technically possible with small amounts, $100+ allows proper risk management.
Q: How does funding rate affect perpetual contracts?
A: Periodic payments between long/short positions help maintain price convergence with spot.
Q: Can I practice without real money?
A: Yes, OKX offers demo trading environments for risk-free learning.
Q: What timeframes work best for contract trading?
A: 4-hour and daily charts provide cleaner signals than minute-to-minute trading.
Q: How many positions should I hold simultaneously?
A: Beginners should focus on 1-2 positions maximum for proper monitoring.