Introduction to Perpetual Contracts
Cryptocurrency contract trading is like a powerful beast—it can lead to significant gains but also carries substantial risks. In today's crypto market, contract trading accounts for two-thirds of total trading volume, while spot trading makes up the remaining third.
Key features of contract trading:
- Low entry barrier (as little as a few dollars)
- 24/7 trading availability
- Flexible leverage adjustment
However, the world of contracts is fraught with challenges. Many stock traders enter the market with enthusiasm but exit in defeat due to forced liquidations from misunderstanding contract mechanisms. This guide will explain perpetual contract fundamentals and provide practical trading instructions.
Core Principles of Contract Trading
What is Contract Trading?
Contract trading allows you to speculate on price movements and hedge risks. Unlike spot trading where you profit from buying low and selling high, contract trading enables profits from both rising and falling markets through:
- Long positions: Buying contracts expecting price increases
- Short positions: Selling contracts expecting price declines
Types of Crypto Contracts
- Futures Contracts: Have predetermined settlement dates
- Perpetual Contracts: No expiration date (our focus in this guide)
Perpetual contracts are further divided into:
- Linear (USDT-margined) Contracts: Priced and settled in USDT
- Inverse (Coin-margined) Contracts: Priced in USD but settled in the base currency (e.g., BTC)
For beginners, USDT-margined perpetual contracts are recommended due to:
- Simplified asset management (only USDT needed)
- Ability to trade multiple cryptocurrencies without holding each one
Three Critical Metrics in Perpetual Contracts
1. Mark Price
The mark price prevents market manipulation by:
- Following underlying spot market trends
- Being less affected by temporary liquidity issues
- Incorporating data from multiple exchanges
👉 Learn more about mark price calculation
2. Funding Rate
This unique perpetual contract mechanism maintains price alignment with spot markets:
- Positive rate: Longs pay shorts
- Negative rate: Shorts pay longs
- Calculated every 8 hours using: Funding Fee = Position Value × Funding Rate
Example: If you hold a $10,000 long position with a 0.0045% rate, you'd pay $0.45 at settlement.
3. Margin Requirements
The basic formula:
Margin × Leverage = Position Value
For example:
- Position value: $230
- 10x leverage → $23 initial margin required
Step-by-Step Trading Tutorial
Getting Started on OKX
- Select Isolated Margin mode
- Choose your position (long/short) and adjust leverage
Set order parameters:
- Entry price
- Position size (in contracts)
- Take-profit and stop-loss levels
Example trade:
- Sell (short) BTC at $23,000
- Position size: 1 contract (≈$230 at 10x leverage)
- Take-profit: $22,000
- Stop-loss: $24,000
Post-Trade Management
After opening a position, you can:
- Adjust take-profit/stop-loss levels
- Close position manually
- Use market close for urgent situations
- Modify margin and leverage
Risk Management Tips
- Add margin when near liquidation to delay it
- Higher leverage reduces required margin (but increases risk)
- Always calculate potential profits/losses before trading
Frequently Asked Questions
Q: How often are funding fees paid?
A: Every 8 hours (00:00, 08:00, and 16:00 UTC).
Q: What happens if I don't have enough margin?
A: Your position will be liquidated automatically.
Q: Can I change leverage after opening a position?
A: Yes, but decreasing leverage requires adding more margin.
Q: Why does my P&L fluctuate before settlement?
A: Unrealized P&L is calculated using mark price, which changes continuously.
Q: How are contract sizes determined?
A: Each BTC/USDT contract represents 0.0001 BTC of notional value.
Q: What's the difference between isolated and cross margin?
A: Isolated limits risk to a specific position, while cross uses your entire balance.
Conclusion
Perpetual contracts offer powerful opportunities but require thorough understanding. Start with small positions, master risk management, and gradually build your trading skills. Remember—successful trading combines knowledge, discipline, and continuous learning.