CoinTiger has hosted the 6th AMA session again with Dickson Magic, the professional Contract trader, trend analyzer and a partner at CoinTiger on the 6 April. CoinTiger recaps the AMA session in case you have missed out on the AMA contents
Session1: QA with the Project representative
Q1: In the digital currency field, what is contract trading? How is it different from the standard trading?
Dickson: In the digital currency market, unlike the real-time settlement of “currency-to-currency trading” (spot trading), “contract trading” refers to the settlement between the buyer and the seller at an agreed price at a certain time in the future. In the contract market, traders do not buy or sell digital currency directly, but trade in a kind of “agreement” which represents digital currency and make a settlement in the future (if there is a delivery period, a settlement will be done on the delivery date; perpetual contracts have no delivery date, so settlement is made at the moment when the closing transaction is successfully conducted).
Q2: Hmm, then, under what circumstances is it suitable to go for contract trading? What are its benefits?
Dickson: “If you expect the price of a digital currency (investment target) to rise or fall in the future but do not have enough funds to make a standard order, this is when you could try out contract. You can get the price difference income between the current price and the expected price of the investment target by participating in contract trading and investing with a small amount of principal. With the leverage effect, the income may be higher than what you might get from a standard trade.
Here is an example: if the BTC price is 5,000USDT at present and you expect it to rise to 8,000USDT in the short term, but you don’t have enough money on hand to buy BTC on the spot, then you can open a 10x leverage by investing 500USDT and buy long (rise). When the BTC price smoothly rises to 8,000USDT, you can close your position and get the same income as you would get when you buy 1 actual BTC and sell it when the BTC price rises to 8,000USDT (neglecting transactions fees, etc.).”Q3: CoinTiger is your cooperation platform. Their perpetual contracts are divided into two types: currency standard contract and USDT standard contract? What do they respectively mean? Which is easier for beginners to trade-in?
Dickson: In simple words, a currency standard contract is a contract that you can only open orders in the currency you have. For example, a BTC currency standard contract uses BTC as a margin to open long or short BTC positions. A USDT standard contract is to use USDT as a margin. With it, you can open long or short order contracts in BTC/ETH/LTC and various other currencies.
Q4: What expenses will arise from trading contracts? Is the cost high?
Dickson: Expenses involved in contract trading include: trading fees will be incurred when opening/closing positions. The CoinTiger platform divides contract trading fees into different levels according to users’ contract trading amounts. Different trading amounts correspond to different fee rates. The bigger the trading amount, the lower the fees rate. Specific fee rates are as follows (the specific level is determined based on the total amount of USDT converted from the trading volume in all contract currencies in the previous month.
In addition, there will be a funding fee during the position holding period, which is charged every 8 hours and adjusted dynamically. CoinTiger uses the funding fee to anchor the market price of a perpetual contract to the spot price. For specific rules, please refer to the following link: https://cointiger.zendesk.com/hc/en-us/articles/360036026874
Q5: OK. In terms of funding fees, contract trading is more competitive than standard trading, whose fee rates for the taker and the maker are 0.15% and 0.08% respectively. Next, could you please briefly explain the pile of concepts on the contract product. What is the margin? What about the face value of the contract? How to calculate the number of positions opened? How is the handling fee calculated? I do not quite catch them.
Dickson: -The margin means that a user can participate in the buy and sell of contracts by paying a small part of funds at a certain percentage according to the contract price. Such a fund is called margin. The bigger your margin, the bigger the number of contracts you can use to trade, and the lower the risk of forced liquidation;
-The face value of a contract refers to the value of the contract object corresponding to the contract. For example, on CoinTiger, the face value of a BTCUSDT contract is 0.0001BTC;
-The number of positions opened is related to the leverage applied, amount of margin, and cross or isolated mode (to be discussed later) which you choose. On CoinTiger, the system will prompt the upper limit of position opening (maximum number of positions opened) according to your selection;
-Contract fee = number of open positions*contract’s face value*open position price*fee rate
Assuming that 100 positions are opened, the face value of the contract is 0.0001BTC and the opening price of BTC is 6,000USDT, according to Maker’s Level 1 handling fee rate of 0.03%, the contract handling fee is 100*0.0001*6000*0.0003 = 0.018USDTQ6: We often hear contract players talking about closing and opening positions. What do they mean? How are they different from buying and selling? Does close order mean to sell?
Dickson: Operationally, there is not much difference between contract trading and standard currency trading. You only need to choose whether to buy long (expecting a rise) or sell short (expecting a fall) and then choose a proper leverage ratio.
There are nevertheless differences between “close” and “sell” in spot trading. In contracts, “close” has the double meaning of “buy” and “sell”. If you hold long orders, then closing your order would mean “selling long”; if you hold short orders, then it means “buying short”.
Q7: As in the case of standard trading, there are also limit order and market order in contract trading. Do they have the same meanings?
As contract fluctuations are big, is it better to use limit price when opening a position and adopt market price when closing a position?Dickson: The definitions of limit order and market order in contract trading are the same in standard trading.
A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. A limit order is not guaranteed to execute.
A market order is a buy or sells order to be executed immediately at the current market prices. As long as there are willing sellers and buyers, market orders are filled. Market orders are used when certainty of execution is a priority over the price of execution. A market order is the simplest of the order types.
Q8: Among the order types, there is also [Stop-limit Order]. What is a stop-limit order? How to set it? Which is usually the better position to set a stop-limit order?
Dickson: A stop-limit(plan) order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is reached, a stop-limit order becomes a limit order that will be executed at a specified price (or better).
Q9: What is take-profit/stop-loss? How to set them? What is the appropriate profit/loss ratio?
Dickson: When a user holds a contract order, he can use the [Stop-limit Order] on the [Close Position] page to execute a relatively complex [Take Profit] or [Stop Loss] strategy, which means the similar thing as the [Stop-limit Order] when a position is opened above. There are several conditions for taking profit and stopping loss, such as trigger price, order price, and the number of orders, namely using what price to open how many orders when the price reaches what level.
If you open long, take profit means that when the price rises to a certain level, you close your position at a certain price to make a profit;
If you open long, stopping loss means that when the price falls to a certain level, you close your position in time to ensure that the loss is not too much.
Benefits of stop profit and stop loss: you do not have to look at market developments real-time; stopping profit and stopping loss can be monitored at the same time (because if you open a position, you set a price and wait for a deal, in which case there is no way for you to open an order in another direction.)
Session 2: Open Questions by the Community
Q1: how to enter contract trade?
Dickson: You’ll need a CoinTiger account and assets in contract account
Q2: If the leverage is increased, does the margin also need to be increased?
Dickson: It does not have to be increased, but the risk will increase. Under [Isolated Mode], there is an initial limit on the margin. In case of market fluctuation, the user needs to manually increase the margin, or reduce the risk of forced liquidation by making up the position (continuing to open the position), etc.
Q3: For beginners can you please tell us How to Pick the Right Exchange for trading?
Dickson: I’ll be giving guidelines based on the CoinTiger exchange. Thus I recommend CoinTiger
Q4: What does the maintenance margin rate of 0.5% mean? What is the minimum margin?
Dickson: After a position is opened, the minimum margin ratio of the position needs to be maintained in the course of price fluctuations. If the account margin falls below this ratio, forced liquidation will happen.
Isolated mode: minimum margin for a single position = opening margin*0.5%
Cross mode: minimum margin = all opening margins*0.5%
Example:
Under isolated mode, if the opening margin is 100USDT, then the minimum margin = 100*0.5% = 0.5 USDT
Under cross mode, the contract account has 100USDT available and the margin for already opened positions is 20USDT, then the minimum margin = (100+20)*0.5% = 0.6 USDTQ5: How to optimize profit?
Dickson: Apply leverage but with a healthy margin
Q6: Under the same balance, why the number of long positions that can be opened is different from the number of short positions that can be opened?
Dickson: Under the same available balance of a contract, the maximum number of long or short positions that can be opened at the same price is different. Theoretically, the number of long positions is more than the number of short positions that can be opened. Because the expected price of forced liquidation of short positions is higher than the opening price, more handling fees for forced liquidation need to leave for the short positions, so that an order of forced closing can be sent out in the case of forced liquidation. Then, as more handling fees for forced liquidation are reserved in the positions, the number of long positions that can be opened is more than the number of short positions that can be opened under the same price and the same available contract balance.
Q7: When a contract position is opened, there will be an [Estimated Liquidation Value]. But when forced liquidation really happens in the end, we can find that the actual price is different from the [Estimated Liquidation Value]. For example, I expect forced liquidation when the BTC price falls to $5,000, but the actual closing price is $4,980. Why?
Dickson: Under extreme market situations, the estimated liquidation value will be different from the entrusted price. However, users will not suffer too much losses. For example, if you open long, your estimated liquidation value is 5,000USDT. If the price rapidly falls below 5,000USDT over a short period of time, it is normal for your entrusted (or rather executed) liquidation value to be less than 5,000USDT. But, given your fixed margin, no position wearing will happen (it can be understood as debt or deduction of your money elsewhere).
Q8: What is the characteristic of a liquidation?
When a position is liquidated, your money will be gone. So a stop loss is a must to apply
Session 3: Multiple-Choice-Questions
The correct answers will be bolded
Q1. When is it suitable for Contract trading?
A: Any time
B: When you are rich
C: When you don’t have enough to buy a coin you want
D: During bullish market
Q2. How to prevent liquidation?
A: Maintain a healthy margin
B: Pay attention to PnL of your order and close before it liquidates
C: Close order with market price
D: All in without margin
Q3. How do you transfer assets to the contract trading account?
A: Funds->Trading account to Contract account
B: Funds->Investment account to Trading account
C: Funds->Trading account to Investment account
D: No operation needed
Q4. How much do I need to begin contract trading?
A: Your affordable amount
B: 100 USDT
C: 4900 USDT
D: It’s free
Q5. Why should you follow Dickson’s order?
A: It is a reference that helps you to try
B: It’s a bait for investment!
C: I don’t think people should follow
D: No idea
About CoinTiger
CoinTiger(www.cointiger.com) is the first crypto exchange to introduce an equity mechanism with its native TigerCash (TCH) token. CoinTiger has listed 133+ tokens and worldwide users stood at 3 million across 150 countries with a ratio of 34% Chinese and 66% international users.
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