Gate.io contract tutorial

In contract futures trading, traders can amplify potential profits and losses through leverage, making it a high-risk, high-reward tool.

Nov 13, 2024 at 12:10 pm

Gate.io Contract Tutorial

Step 1: What are Contract Futures?

In traditional spot trading, you buy and sell assets at a set price. In contrast, contract futures are speculative instruments that allow traders to bet on the future price of an asset, usually with leverage. This leverage can amplify both potential profits and losses, making contract futures a high-risk, high-reward trading tool.

Step 2: Understanding Leveraged Trading

Leverage in contract futures allows traders to control a position much larger than their initial investment. For example, with 10x leverage, a $1,000 investment effectively gives you $10,000 of trading power. The benefit is the potential for greater profits. However, remember that losses are also amplified, making it crucial to manage risk effectively.

Step 3: Choosing a Contract on Gate.io

Gate.io offers a wide range of contract futures. To choose a suitable contract, consider the following:

• Asset: Determine which asset you want to trade, such as BTC, ETH, or altcoins.
• Leverage: Select a leverage that aligns with your risk tolerance and trading strategy.
• Expiry: Choose a contract expiration date that suits your trading timeframe.
• Perpetual Contract: Consider perpetual contracts if you desire a contract without an expiry date, enabling long-term positions.

Step 4: Funding Fees and Mechanics

Contract futures trade on perpetual contracts, meaning positions can be held indefinitely. To align with the spot market, a funding fee is paid or received every 8 hours. When the contract price is higher than the spot price, longs (buyers) pay a fee to shorts (sellers). Conversely, when the contract price is lower than the spot price, shorts pay longs.

Step 5: Placing an Order and Managing Positions

To place a contract futures order, select the desired contract and input the quantity, leverage, and order type. Once placed, your position will be opened at the market price or a limit price if specified. To manage your position, use the stop-loss and take-profit tools to define pre-set exit points.

Step 6: Margin Management in Contract Futures

In contract futures, your initial investment serves as margin, backing your leveraged position. As the asset price fluctuates, your margin balance also changes. If your margin balance falls below a certain level, you may face a margin call, requiring additional funds or the liquidation of your position.

Step 7: Liquidation Process and Risk Management

Liquidation occurs when your margin balance becomes insufficient to cover losses. This happens when the asset price moves against your prediction, eroding your margin. To prevent liquidation, monitor your positions closely and close or adjust them as needed. Effective risk management techniques, such as trailing stop-losses and position sizing, are crucial.

Step 8: Market Making in Contract Futures

Market makers play a vital role in providing liquidity and narrowing the bid-ask spread in contract futures markets. They actively buy and sell contracts, aiming to profit from the small differences in prices. Gate.io supports market making with dedicated programs and incentives, enabling traders to participate in this revenue-generating strategy.