Introduction to Contract Trading
In June 2013, 796 Exchange pioneered Bitcoin futures trading with the launch of the world's first weekly-delivery standardized futures contract—T+0 bidirectional virtual commodity swap contracts (contract trading). This innovation marked the end of Bitcoin's inability to be shorted and ignited the rapid growth of the cryptocurrency derivatives market.
Core Components of Contract Trading
1. BraveNewCoin Price Index (BPI)
BraveNewCoin ('BNC') aggregates data from major global cryptocurrency exchanges 24/7, calculating weighted average prices to determine BPI values for each cryptocurrency against USD.
Key Metrics:
- Weighted Average Price: Computed based on trading volume across exchanges.
- Data Collection: Updated every 5 minutes, including latest prices and 24-hour trading volume.
2. Fundamental Concepts
- Tick: The smallest price movement unit (e.g., 0.01 USD for Bitcoin/Litecoin).
Tick Value: Profit/loss per tick, adjustable via position sizing.
Formula:
Profit/Loss = Tick Value × Number of Ticks Changed
3. Position Management
- Long/Short: Predict upward/downward price movements.
- Leverage: Trade with margin ratios (5%, 10%, 20%) to amplify exposure.
Risk Management Mechanisms
1. Dynamic Price Limits (DPL)
- Prevents extreme volatility by capping buy/sell order prices.
- Adjusts based on real-time market conditions.
2. Liquidation Rules
- Weekly Contracts: Triggered at 90%-97.5% loss thresholds.
- Quarterly Contracts: Lower leverage (1x–5x) with stricter liquidation triggers.
3. Stop-Loss Strategies
- Set customizable triggers and execution prices to limit losses.
- Subject to DPL constraints for fair execution.
FAQs
Q1: How does contract trading differ from spot trading?
A1: Contracts allow bidirectional trading (long/short) with leverage, enabling profit in both rising and falling markets.
Q2: What happens during liquidation?
A2: Positions are automatically closed, with losses capped at the margin amount. System takes over positions to maintain market balance.
Q3: How are prices calculated?
A3: Weighted averages from global exchanges, updated every 5 minutes.
Q4: Can I customize leverage?
A4: Yes, choose from 5%, 10%, or 20% margin ratios.
Q5: What’s the role of the "Market Dynamic Coefficient"?
A5: It standardizes profit/loss conversion from USD to crypto, recalculated weekly.
Pro Tips for Traders
👉 Master leverage strategies to optimize risk-reward ratios.
👉 Always monitor margin levels to avoid forced liquidation.
👉 Use stop-loss orders to protect gains in volatile markets.
Conclusion
Contract trading offers unparalleled flexibility but requires disciplined risk management. By understanding core mechanics—ticks, leverage, and liquidation—you can navigate futures markets confidently. Stay updated with real-time data and employ strategic tools like DPL and stop-loss to thrive.
👉 Explore advanced trading tools to elevate your strategy today.