Cryptocurrency contracts are among the most popular derivatives in digital asset markets. These contracts allow buyers and sellers to agree on trading a specific asset at a predetermined price and future date. Beyond traditional spot trading, contracts enable investors to profit from both upward (long) and downward (short) price movements of assets like Bitcoin (BTC).
For example:
- Long Position: Profit if BTC rises; loss if it falls.
- Short Position: Profit if BTC falls; loss if it rises.
Contracts also serve as tools for hedging risks or executing arbitrage strategies. A key feature is leverage, which amplifies profits and losses by multiplying capital exposure (e.g., 10x leverage = 10x capital power). However, leveraged trading significantly increases risk, making it suitable only for experienced traders.
Types of Cryptocurrency Contracts
Cryptocurrency contracts are categorized into delivery contracts (with expiry dates) and perpetual contracts (no expiry). These further divide by margin types: coin-margined (e.g., BTC) or U-margined (e.g., USDT/USDC).
1. Delivery Contracts
Delivery contracts settle on a fixed expiry date. Upon expiry, open positions are automatically closed at the hourly arithmetic average index price. Common expiry cycles include:
- Weekly
- Bi-weekly
- Quarterly
- Bi-quarterly
2. Perpetual Contracts
Unlike delivery contracts, perpetual contracts never expire. To tether their price to spot markets, a funding fee mechanism adjusts periodically:
- Positive Funding Rate: Long positions pay short positions.
- Negative Funding Rate: Short positions pay long positions.
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Funding fees are exchanged every 8 hours (08:00, 16:00, 24:00 HKT) and apply only to positions held at these times.
3. Coin-Margined Contracts
These use the traded asset (e.g., BTC) as collateral. Key features:
- Contract Value: Tied to the asset’s USD index (e.g., BTC = $100 per contract).
- Benefits: Hedges against asset volatility while capturing upside.
4. U-Margined Contracts
Collateralized by stablecoins (USDT/USDC), these contracts simplify margin management:
- Contract Value: Fixed in crypto units (e.g., 0.001 BTC).
- Advantages: No asset depreciation risk; unified margin pool for multi-currency trading.
How Contract Trading Works
Step 1: Select Contract Type
Choose between perpetual (flexible) or delivery (fixed expiry) contracts based on market outlook.
Step 2: Set Margin Mode
- Cross Margin: Shared margin across all positions; requires 100% margin ratio.
- Isolated Margin: Separate margin per position; higher capital control.
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Step 3: Enter Trade Parameters
Specify:
- Order Type: Limit, market, or stop orders.
- Price/Amount: Based on real-time charts.
- Leverage: Adjustable per position.
Step 4: Monitor & Adjust Positions
- Close Early: Lock profits or cut losses anytime (perpetual contracts).
- Roll Over: Extend delivery contracts before expiry.
Step 5: Settlement
- Delivery Contracts: Auto-closed at expiry index price.
- P&L Calculation: Realized gains/losses reflect in account balance.
FAQs
Q1: Which contract type is better for beginners?
A: Perpetual contracts simplify trading with no expiry, but delivery contracts offer structured timelines. Start with low leverage (≤5x).
Q2: How are funding fees calculated?
A: Fees = Position Value × Funding Rate. Rates adjust every 8 hours based on spot-contract price gaps.
Q3: Can I switch margin modes mid-trade?
A: Only when no positions/open orders exist.
Q4: What’s the main risk in contract trading?
A: Leverage magnifies losses—ensure risk management (stop-losses, position sizing).
Q5: Why choose U-margined contracts?
A: Avoid volatility of holding base coins; streamlined margin calculations.
Risk Warning: Crypto trading involves high risk. Prices are extremely volatile, and leveraged products may result in total capital loss. Trade responsibly.