How to play Bithumb perpetual contracts

Bithumb's perpetual contracts offer traders flexibility in speculating on crypto asset prices without predefined expiration dates, expanding opportunities for profit and risk management.

Nov 07, 2024 at 07:23 am

Exploring the Maze of Bithumb Perpetual Contracts: A Comprehensive Guide

Introduction

Bithumb, one of the leading cryptocurrency exchanges in South Korea, has introduced perpetual contracts as a means to trade crypto derivatives. These contracts offer a unique blend of traditional futures contracts and spot trading, allowing traders to speculate on the future price of digital assets without expiry dates. This guide will provide a step-by-step walkthrough of how to navigate the complexities of perpetual contracts on Bithumb, empowering traders to unlock their full potential.

Step 1: Understanding Perpetual Contracts

Perpetual contracts, often referred to as perpetual futures, resemble traditional futures contracts in that they provide exposure to the underlying asset without the obligation to deliver or receive the physical asset. However, unlike futures contracts, which have predetermined expiration dates, perpetual contracts extend indefinitely until closed by the trader. This perpetual nature grants traders the flexibility to hold positions for as long as desired without the risk of forced closing due to contract expiration.

Step 2: Accessing Bithumb Perpetuals

To access Bithumb's perpetual contracts, traders must have an active account on the exchange. Navigate to the "Derivatives" tab on the Bithumb website and select "Perpetuals" from the subcategories. This will redirect you to the perpetual contract trading platform.

Step 3: Selecting the Trading Pair

Bithumb offers a variety of perpetual contracts based on different cryptocurrencies. To start trading, traders must choose their preferred trading pair. Each trading pair represents a contract that tracks the price of a specific cryptocurrency against another. For instance, the BTC-USDT pair allows traders to speculate on the future price of Bitcoin using Tether (USDT) as the collateral.

Step 4: Funding the Margin Account

Perpetual contracts are margin-based instruments, meaning traders are required to maintain a certain amount of collateral in their margin account to cover potential losses. The minimum margin requirement varies depending on the trading pair and the trader's leverage. Traders can fund their margin account by transferring cryptocurrencies from their Bithumb spot wallet or through external deposits.

Step 5: Choosing the Order Type

Bithumb supports both market orders and limit orders for perpetual contracts. Market orders are executed immediately at the prevailing market price, while limit orders allow traders to specify a desired price at which they want their order to be executed. Limit orders can be used to manage risk and target specific price levels.

Step 6: Managing Risk with Leverage

Leverage is a powerful tool that can amplify both profits and losses in perpetual contract trading. Bithumb provides a range of leverage options, allowing traders to trade with up to 100x leverage. However, it is crucial to use leverage responsibly, as excessive leverage can lead to substantial losses.

Step 7: Monitoring Positions and Closing Trades

Once a position is opened, traders can monitor its performance in the "My Positions" section. Here, they can view their current profit/loss, margin balance, and leverage. To close a position, traders can simply place an opposite order to the one that opened the position. For instance, if a long position was opened, a short position can be used to close it.

Step 8: Understanding Funding Rates

Perpetual contracts utilize a mechanism called funding rates to align the perpetual contract price with the underlying spot price. Funding rates are paid periodically by traders in long positions to traders in short positions, or vice versa, depending on the market conditions. Understanding funding rates is essential to manage positions effectively.

Conclusion

Navigating the world of perpetual contracts on Bithumb requires a comprehensive understanding of how these instruments operate. This guide has provided a detailed walkthrough of the essential steps involved in trading Bithumb perpetual contracts, from understanding the concept to managing risk and closing trades. By following these steps and embracing responsible trading practices, traders can gain a deeper understanding of perpetual contracts and leverage their potential to enhance their trading strategy.