A must-have for novice cryptocurrency enthusiasts! What is contract trading?

For beginners entering the cryptocurrency market, contract trading might seem complex, but it’s a highly potential investment tool. Unlike spot trading, contract trading allows investors to predict price trends in digital currencies and profit from market fluctuations.

What is Contract Trading?

Contract trading is a derivative form of digital currency trading that allows investors to buy or sell digital currencies at an agreed-upon price at a future date without owning the actual asset. This enables investors to profit from predicting market price movements, allowing both long and short positions to benefit from market volatility.

Two Types of Contract Trading

1. Delivery Contract: This contract involves buying or selling at an agreed price at a specific future time.

2. Perpetual Contract: This contract does not have a fixed expiration date, offering more flexibility for investors to close positions at any time.

Basic Operations of Contract Trading

Similar to the forex market, contract trading primarily involves two main actions: opening and closing positions:

• Opening a Position: Investors either buy (long) or sell (short) to open a position. A long position is taken if the market is expected to rise, and a short position if the market is expected to fall.

• Closing a Position: Closing is done by executing the opposite trade to your open position. It can be either closing a long position (selling the held contracts) or a short position (buying back the sold contracts).

How to Control Risk?

Contract trading comes with higher risks, especially when leverage is involved, so it’s crucial to exercise caution. Here are some effective risk management strategies:

1. Set Stop-Loss and Take-Profit Orders: Setting stop-loss and take-profit levels helps investors lock in profits or cut losses when the market moves against them. For example, if buying at 5000 points, set take-profit at 5100 and stop-loss at 4950 points.

2. Control Position Size: It's recommended that no more than 10% of your total capital be used in a single trade to reduce risk from market fluctuations.

3. Learn and Practice: Investors should understand the market, master the basics of contract trading, and build experience to improve their risk tolerance.

Conclusion

Contract trading offers more opportunities for profit but also comes with higher risk. For beginners, effectively using stop-loss and take-profit strategies, controlling leverage and position size, and continually learning the market are keys to success.