What is contract trading?

Futures trading is a form of trading based on financial contracts, which allows investors to buy or sell underlying assets at a predetermined price at some point in the future. This form of trading is quite common in the financial markets, especially in the fields of futures, options, and contracts for difference (CFD). Unlike spot trading, futures trading does not involve immediate asset delivery, but focuses on predicting future prices and market trends.

Main Features

1. Leveraged trading

Contract trading typically involves leverage, which means investors only need to pay a small portion of the margin to control a larger trading volume. Leverage can amplify profits, but it also increases risks.

1. Long and short two-way trading

Contract trading allows investors to choose to go long or short based on market predictions. Going long means buying a contract, expecting the price to rise; going short means selling a contract, expecting the price to fall. This allows investors to have the opportunity to make a profit regardless of market trends.

1. Expiration Date and Settlement

Most futures contracts have specific expiration dates, and investors need to close out or make delivery before the contract expires. Settlement can be in cash or physical delivery, depending on the nature of the contract and market regulations.

Trading Type

1. Futures Contract

Futures contracts are one of the most common forms of contract trading, allowing investors to buy or sell underlying assets such as crude oil, gold, or stock indexes at a predetermined price on a specific date in the future.

1. Options Contract

Option contracts give the buyer the right, but not the obligation, to buy or sell the underlying asset at a specific price within a specific time period. Options are divided into call options and put options, corresponding to expectations of price increases and decreases, respectively.

1. Contract for Difference (CFD)

A contract for difference (CFD) is a type of derivative financial instrument that allows investors to profit from the difference in the price of the underlying asset without actually owning it. CFDs are widely used in markets such as stocks, forex, indices, and more.

Advantages and Risks

Advantage

1. Provide risk management tools

Contract trading can serve as a hedging tool to help investors manage price volatility risks. For example, farmers can lock in the future selling price of agricultural products through futures contracts to prevent losses caused by market price declines.

1. Increase market liquidity

Contract trading has attracted a large number of investors to participate, thereby enhancing market liquidity and trading activity. A highly liquid market is more likely to achieve trades and provide more competitive prices.

1. Diversified investment strategies

Contract trading offers a variety of investment strategy options, whether it’s short-term trading, long-term investment, or risk hedging, suitable contract products can be found.

Risk

1. Leverage risk

Although leveraged trading can amplify profits, it can also amplify losses. If investors fail to manage risks properly, they may face substantial losses or even lose all their margin.

1. Market volatility risk

The drastic fluctuations in market prices may lead to significant changes in contract prices, resulting in unexpected losses for investors. Therefore, contract trading requires a keen judgment of market trends.

1. Liquidity risk

Some contract markets may have insufficient liquidity, especially in non-mainstream or extreme market conditions, where investors may not be able to close positions in a timely manner.

How to conduct contract transactions?

1. Select perpetual contracts and trading pairs

• Log in to Gate.io official website.
• Click on the ‘Contract Trading’ option in the top navigation bar, select ‘Perpetual Contract’ or ‘Futures Contract’ to enter the contract trading page.
• Click the trading pair button in the upper left corner of the page, and select the currency trading pair you want to trade.

1. Fund Transfer

In the classic account mode, click the ‘Funds Transfer’ button in the lower right corner to transfer assets from the spot account to the contract account.

1. Choose position mode and adjust leverage multiplier

• Choose between full position or isolated margin mode.
• In cross margin mode, all cross margin trading pairs share the position margin; in isolated margin mode, each trading pair has an independent position, and the position sets the leverage multiple (1-125 times), the higher the leverage multiple, the lower the required margin, but the higher the risk of liquidation.

1. Choose the order method and confirm the direction of opening position.

• Choose limit, market, conditional or advanced limit order for placing orders.
• Limit order trades at the price and quantity specified by you; market order trades quickly at the best market price; conditional order and advanced limit order execute when the trigger price is reached.
• Enter the price and quantity, confirm the direction of opening position, and click ‘Buy Long’ or ‘Sell Short’ to place an order.

1. Close position

• Click on ‘Position’ at the bottom of the page to view your position information, track the liquidation price, or set stop profit and stop loss.

• When the expected profit is reached, choose market price, limit price, or one-click liquidation to complete the closing operation.

Summary

Contract trading is a flexible and diverse trading form full of opportunities, suitable for investors with certain market experience and risk management capabilities to participate. Through contract trading, investors can seize investment opportunities in different market environments, achieve the goal of asset appreciation. Contract trading comes with high risks, so investors should operate cautiously and fully understand the principles of market operation and risk control measures in order to stand invincible in this challenging market.

Join the Gate.io futures trading now:https://www.gate.io/futures/USDT/BTC_USDT