Contract trading refers to an agreement between buyers and sellers to exchange a specified quantity of an asset at a predetermined price at a future date. These standardized contracts are created by exchanges, which define commodity types, trading times, quantities, and other standardized information. Contracts represent the rights and obligations of both parties.
In simple terms, contract trading means agreeing today on future terms for trading a specific quantity of a commodity. As a financial derivative, contract trading operates differently from spot markets. Traders can speculate on price movements by going long (buying) or short (selling) contracts to profit from upward or downward trends.
Types of Contracts
Contracts are categorized based on settlement methods:
- Perpetual Contracts: No fixed settlement date
Fixed-Term Contracts: Have specific settlement dates, further classified as:
- Weekly contracts
- Bi-weekly contracts
- Quarterly contracts
Spot Trading vs. Futures Trading
- Spot Trading: Immediate exchange of assets ("cash-and-carry")
- Futures Trading: Agreements for future transactions
How to Trade Contracts (Using OKEX as Example)
Fund Transfer:
- Navigate between accounts (Wallet, Spot, Futures, Fiat)
- Transfer funds to your futures account for contract trading
Position Management:
- Monitor open positions and margin requirements
Order Execution:
- Place limit/market orders based on market analysis
Frequently Asked Questions (FAQ)
What's the difference between perpetual and fixed-term contracts?
Perpetual contracts have no expiry date, while fixed-term contracts settle at predetermined dates.
Is contract trading riskier than spot trading?
Yes, due to leverage effects, though risk can be managed through proper position sizing and stop-loss orders.
How is profit calculated in contract trading?
Profit = (Exit Price - Entry Price) × Contract Multiplier × Number of Contracts
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What's the minimum investment for contract trading?
Minimums vary by exchange and contract type, typically starting from $10 equivalent.
Key Considerations for Contract Trading
- Understand leverage risks
- Implement risk management strategies
- Monitor funding rates (for perpetual contracts)
- Stay updated on market news and events
Remember: Contract trading requires thorough understanding before participation. Begin with small positions as you gain experience.
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