What does the contract in the currency circle mean?

Cryptocurrency contract is a derivative financial instrument that allows traders to trade the price of the underlying asset without holding its price. There are two types of contracts: perpetual contracts and delivery contracts. Their main functions include leverage, hedging risks and arbitrage trading. Contract trading has the characteristics of high risk and high return. You need to pay attention to high leverage risk, liquidation risk, liquidity risk and knowledge requirements.

Contracts in the currency circle

In the currency circle, a contract is a derivative financial instrument that allows traders to trade on the price of the underlying asset without holding ownership of the underlying asset. Contracts can be divided according to their settlement methods:

Perpetual Contracts

• Both parties to the transaction continue to maintain positions before the expiration of the contract, without actual delivery.
• Settlement is in the form of cash payment of the difference.
• Main products include BTCUSD, ETHUSD, etc.

Delivery Contract

• Both parties to the transaction will make physical delivery after the contract expires.
• Settlement takes place in the form of delivery of the underlying assets.
• Mainly used for delivery of actual commodities, such as oil and gold.

Contract Features

The main features of the contract include:

• Leverage: Contracts usually provide high leverage, allowing traders to leverage larger positions with smaller funds.
• Hedging risks: Traders can use contracts to hedge the risks of spot positions.
• Arbitrage Trading: Contracts can be used for arbitrage, which is to obtain risk-free profits by trading the same underlying asset in different markets.

Precautions for contract trading

Contract trading has the characteristics of high risk and high return. Traders need to pay attention to the following matters when conducting contract trading:

• High leverage risk: Although leverage can amplify returns, it also Will amplify losses.
• Risk of liquidation: The contract has the risk of liquidation. When the loss exceeds the margin, the trader will be forced to liquidate the position.
• Liquidity Risk: The liquidity of a contract varies depending on the underlying asset and exchange, and in the case of poor liquidity, traders may have difficulty closing their positions.
• Knowledge requirements: Contract trading requires certain financial knowledge and skills, and traders need to have an in-depth understanding of contract mechanisms and risk management.

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