How to trade Binance contracts? How to go long or short Bitcoin on the Binance exchange? In fact, Binance contracts allow you to trade Bitcoin in both directions based on market fluctuations.
When trading contracts on Binance, the core is to use leverage to bet on the price movement for profit. The operation itself is not complicated, but it requires understanding the rules and managing risks effectively.
So, how do you trade Binance contracts? In this article, I will demonstrate how to go long and short Bitcoin on the Binance exchange.
How to trade Binance contracts? A tutorial on going long and short Bitcoin on the Binance exchange.
How to trade Binance contracts?
If you haven't registered on the Binance exchange yet, you can use the registration link and app download address below, along with the video tutorial, to register yourself.
OKX APP is one of the top three exchanges globally, with a 20% reduction in trading fees for registration!
OKX (overseas) registration link: https://www.okx.com/join/97763692
OKX/Binance/Huobi - Register/Download: http://18907.cc
Binance domestic registration: https://www.binance.com/zh-CN/join?ref=565010509
After registration, I will now demonstrate how to go long and short Bitcoin on the Binance exchange:
Click the [Trade] button in the middle of the Binance app, and after clicking twice, you will find the contract operation interface.
How to trade Binance contracts?
Here at the top, we can select the contract for the cryptocurrency we want to trade. For example, if I want to trade Bitcoin contracts, we search for "BTC" and then select "BTCUSDT perpetual."
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To trade its contract, we need to transfer USDT to this contract account. You can see that our available amount is 0. At this point, we click the "+" sign next to it to transfer funds in, and click [Transfer Funds].
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From the funding account to the trading account, select USDT as the currency, enter the amount, and click [Confirm]. This completes the transfer.
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After the transfer is complete, we return to the top, and here in "Isolated Margin," we can see that there is Cross Margin and Isolated Margin. "Cross Margin" means that the funds in your wallet are used as your margin, so you may lose all the funds in your wallet. "Isolated Margin" means that the margin you open will not affect other funds in your account if a liquidation occurs. Therefore, I generally use Isolated Margin.
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The 3X next to it is the leverage, which can go up to 100 times. Of course, high leverage means high risk, so I usually choose below 5 times, generally 2-3 times. For example, I choose 2 times and click [Confirm].
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Next, we can open a position. If you want to buy, click "Buy Long," and if you want to sell, click "Sell Short." Here at the top, I can also choose market price or limit price. "Limit Price" means we can set a price, and the transaction will only occur when that price is reached. "Market Order" means it will execute at the current market's best price directly, which is the fastest. For example, I will use "Limit Order."
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We can see that the current price is 108119, and we want to buy at a price of 108000, so we set the price here and enter the quantity we want to buy. Below, we can buy long and sell short. For example, if I think Bitcoin will rise, I choose [Buy Long] and click [Confirm] to successfully place the order.
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This successful order placement is just a limit order because we used a limit order, and it has not yet reached the price we set, so it has not been executed. If it is executed, it will appear in the "Position" section. If you don't want to wait, you can also cancel the order at any time by clicking [Cancel Order], and it will successfully cancel the order for us.
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Let me demonstrate market price again. "Market Price" means it can be executed directly. For example, at this time, I will input the same quantity and click [Sell Short].
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Click [Confirm] to successfully place the order.
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At this point, you can see it displayed in the position section; this is our opened short order. If you want to stop trading, you can click [One-Click Close Position] here.
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Then click [Confirm]. This will directly close the order for us.
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Contract trading profit and loss calculation method
In contract trading, the most important part is the profit and loss calculation of the contract. Taking Huobi as an example.
Unlike traditional commodity futures, each Huobi contract is not anchored to a fixed quantity of digital assets but to a fixed amount of US dollars. That is, the dollar value of a contract is always fixed.
One BTC contract represents Bitcoin worth 100 US dollars, while for other cryptocurrencies, the face value of a contract is 10 US dollars.
According to the information from Huobi's help center, after investors open a position, unrealized profit and loss will occur with price fluctuations, and the calculation method is:
For example: after I go short, the unrealized profit and loss in my account asset is -0.0001, with the unit being BTC. The calculation method for unrealized profit and loss corresponds to the first formula.
Due to the leverage in contract trading, the investment risk is also very high. When the contract price moves in an unfavorable direction for the investor (the unfavorable direction for long position holders is a price drop, and for short position holders, it is a price increase), it can easily lead to forced liquidation, also known as a margin call.
After the contract is liquidated, the investor's profit and loss will enter the realized profit and loss:
This part of the profit and loss cannot be temporarily transferred out of the contract account until 4 PM on Friday of that week, after all contract profit and loss settlements are completed. This system is also called the "No Liability Settlement System for the Week."
What is contract trading? What are the risks and returns?
Digital asset contract trading refers to an agreement between buyers and sellers to trade a certain asset at a specified price at a future time. Contract trading is specifically divided into delivery contract trading, perpetual contract trading, and options contract trading. Investors can obtain profits from rising digital asset prices by "buying long" contracts, or profits from falling digital asset prices by "selling short," or achieve risk avoidance through hedging, or use arbitrage models to earn stable profits.
What is contract trading? What are the risks and returns?
Contract trading in the digital asset market originated from contract trading in traditional financial markets. Taking soybean contracts in traditional financial markets as an example, during the contract trading process, both parties to the transaction will obtain their respective rights and obligations. For example, if the buyer and seller of the contract transact at a price of 5000 yuan for 10 contracts of one ton of soybeans, the buyer of the contract obtains the right and obligation to buy 10 tons of soybeans at a price of 5000 yuan/ton on a certain date, and similarly, the seller also obtains the right and obligation to sell 10 tons of soybeans at a price of 5000 yuan/ton on that date. The contract that represents the rights and obligations of both parties is a virtual contract.
Most of the time, investors do not actually fulfill the rights and obligations of the contract but trade the contract before it becomes effective, which is the delivery date, to obtain profits.
The difference between contract trading and spot trading is not only that contracts grant rights and obligations during the trading process but also that there is a significant difference in returns and risks. Contract trading can amplify the principal through leverage; the leverage multiple determines how many times the principal is amplified. The existence of leverage increases both the returns and risks of digital assets, which already have high investment risks. Compared to spot trading, contract trading is a higher-risk investment behavior, and new users need to operate cautiously to control risks after understanding the basic situation of contract trading.
What types of contract trading are there?
Binance contracts can be divided into delivery contracts and perpetual contracts based on whether there is an expiration date. Within these two main categories, they can be further subdivided into U-margin contracts and coin-margin contracts based on the type of margin. U-margin contracts include USDT margin contracts and USDC margin contracts.
① Delivery Contracts
Delivery contracts refer to agreements between the trading parties to conduct contract delivery and trading at a specified price on a specified date, which is the delivery date. Delivery contracts have fixed delivery deadlines (currently, Binance offers contracts with delivery cycles of this week, next week, this quarter, and next quarter). When the contract reaches its delivery date, the system will conduct delivery using a non-physical difference settlement mechanism at 4 PM (HKT) on the Friday of the week of expiration. At that time, the user's position will be liquidated. The unrealized profit and loss generated after the delivery liquidation will be added to the realized profit and loss, and then all realized profit and loss will be settled to the balance.
② Perpetual Contracts
Perpetual contracts are a new type of contract that has evolved from continuous contracts in traditional financial markets. Since there is no expiration date, perpetual contracts use a "funding fee mechanism" to anchor the contract price to the spot price. The funding fee is settled every 8 hours, with settlement times at 08:00, 16:00, and 24:00 (HKT) daily. Users only need to pay or receive funding fees when holding positions at these three times. If the position is closed before the funding fee settlement time, it does not involve the payment or receipt of funding fees.
Funding Fee = Position Value * Current Funding Rate. (The current funding rate is determined by the price difference between the contract price and the spot index price during the last funding fee period.)
If the current funding rate is positive, longs need to pay funding fees to shorts; if the current funding rate is negative, shorts need to pay funding fees to longs. (Funding fees are collected from users among themselves, and the platform does not charge this fee.)
③ Coin-Margin Contracts
Coin-margin contracts are contracts where the underlying asset is used as the settlement unit. The contract's underlying asset is the dollar index of that cryptocurrency (for example, the underlying asset of the BTC contract is the BTC dollar index), and the contract face value rule is: the contract face value is a certain dollar value, with BTC being 100 USD; contracts for other cryptocurrencies like ETH and EOS are 10 USD.
It can be used as a hedging tool for the assets held and can also enjoy the value appreciation of the underlying asset and the contract's profits when holding long positions.
④ U-Margin Contracts
U-margin contracts are a type of contract where U is used as the settlement unit. Users need to use stablecoins USDT/USDC as collateral assets. As long as there are USDT/USDC in the account, multiple cryptocurrencies can be traded in contract trading, and the profit and loss are settled in USDT/USDC. The underlying asset of the contract is the USDT/USDC index of that cryptocurrency (for example, the underlying asset of the BTC contract is the BTCUSDT/BTCUSDC index), and the contract face value rule is: the contract face value is a certain amount of cryptocurrency, such as BTC being 0.001 BTC and ETH being 0.001 ETH.
Since only USDT/USDC is used as margin, the margin can be flexibly allocated among contracts, and there is no need to worry about the depreciation risk of holding the underlying currency. Moreover, the calculation formula is simpler, making it easier for users to calculate profit and loss.