What Is Derivative Trading?
Derivative trading refers to an agreement between a buyer and seller to trade a specific asset at a predetermined price and quantity at a future date. More specifically, crypto derivative trading involves trading futures based on crypto assets, such as expiration futures or perpetual futures.
Traders can profit from rising crypto asset prices by buying ("going long") or from falling prices by selling ("going short").
Types of Orders and When to Trade
In derivative trading, there are two main position types: long (bullish) and short (bearish).
Opening a position involves:
- "Buying" to open a long position.
- "Selling" to open a short position.
Closing a position involves:
- "Selling" to close a long position.
- "Buying" to close a short position.
If you predict the underlying token will rise, you can buy to open a long position. Conversely, if you anticipate a drop, you may sell to close the position.
Key Fields When Placing an Order
Trading Products: Perpetual vs. Expiration
- Perpetual Futures: Automatically roll over without an expiration date.
- Expiration Futures: Fixed settlement periods (e.g., weekly, monthly, quarterly).
Contract Unit: Crypto Margin vs. U Margin
- Crypto Margin: Priced in USD, collateralized with crypto (e.g., BTC, ETH).
- U Margin (USDT/USDC): Priced and collateralized in stablecoins (e.g., USDT).
Position Mode: Cross Margin vs. Isolated Margin
- Cross Margin: Uses all available balance as position margin.
- Isolated Margin: Locks a fixed margin, limiting max loss per position.
Leverage
Higher leverage increases potential returns but also amplifies risk.
Order Type
- Limit Order: Executes at a specified price or better.
- Market Order: Executes immediately at the best available price.
Order Value
Orders can be denominated in contract units, tokens, or USDT. Insufficient USDT balance may prevent order submission.
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FAQs
What’s the difference between crypto-margined and U-margined futures?
Crypto-margined futures use USD pricing with crypto collateral, while U-margined futures use stablecoins (e.g., USDT) for both pricing and collateral.
How do perpetual and expiration futures differ?
Perpetual futures lack an expiry date and auto-roll, while expiration futures have fixed settlement periods.
Which margin mode is safer for beginners?
Isolated margin limits losses to the locked collateral, making it preferable for risk management.
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Key Takeaways
- Derivative trading offers flexibility with long/short positions.
- Leverage requires careful risk assessment.
- Choose margin modes based on risk tolerance.