Key Terminologies and Usage Scenarios in Futures Trading

Futures trading involves more complex terms than spot trading. Understanding these terms and how they are used will help you quickly master the operations and risks associated with futures trading. Using BitTap as an example, here is a breakdown of key futures trading terms:

1. Long / Short Positions

• Long (Buy): When a user predicts that the market price will rise, they buy a futures contract. If the price increases, they sell for a profit.
• Short (Sell): When a user predicts the market price will fall, they sell a contract. If the price drops, they buy back for a profit.
• Scenario: On BitTap, if you think Bitcoin’s price will rise, you open a long position. If the price increases, you sell to gain profit. Conversely, if you expect a price drop, you open a short position.

1. Leverage

• Explanation: Leverage allows users to magnify their investment by borrowing funds. This increases potential returns but also amplifies risks. Users can control a larger position with less capital.
• Scenario: On BitTap, if you use 10x leverage, with 100 USDT, you can control a 1000 USDT position. A 10% price increase gives you 100 USDT profit, but losses are also magnified if the market moves against you.

1. Margin

• Explanation: The funds required to open and maintain a position. It includes the initial margin (needed to open a position) and the maintenance margin (minimum required to keep the position).
• Scenario: If you open a Bitcoin contract on BitTap with 200 USDT and the market moves against your position, the maintenance margin may become insufficient, triggering automatic liquidation.

1. Forced Liquidation

• Explanation: When the margin falls below the maintenance margin, the system automatically liquidates the position to prevent further losses.
• Scenario: If you hold a long position and Bitcoin’s price drops, BitTap will liquidate your position once the margin falls below the required maintenance level.

1. Cross Margin / Isolated Margin

• Cross Margin: All available funds are used to cover margin across multiple positions.
• Isolated Margin: Each position has its own allocated margin, and risks are isolated, meaning liquidation of one position does not affect others.
• Scenario: If you want to isolate the risk of each position, you can use isolated margin mode to prevent losses from affecting your other positions.

1. Limit Order / Market Order

• Limit Order: Allows users to set a specific buy or sell price. The order only executes when the market reaches that price.
• Market Order: Executes immediately at the current market price.
• Scenario: If you want to buy Bitcoin at 30,000 USDT while the market is at 32,000 USDT, you set a limit order. If the price drops to 30,000 USDT, the order will execute. A market order will execute immediately at the best available price.

1. Take Profit / Stop Loss

• Take Profit: Automatically closes a position when the price reaches a target profit.
• Stop Loss: Automatically closes a position to limit losses if the price moves against the position.
• Scenario: If you buy Bitcoin at 30,000 USDT, set a take profit at 35,000 USDT and a stop loss at 28,000 USDT. When either level is reached, the system will close the position automatically.

1. Realized / Unrealized P&L

• Realized P&L: The actual profit or loss from closed trades.
• Unrealized P&L: The potential profit or loss of open positions based on current market prices.
• Scenario: When you close a trade, your gains or losses are added to your realized P&L. Unrealized P&L fluctuates based on the current value of your open positions.

1. Funding Rate

• Explanation: A mechanism to align the futures contract price with the spot market price, typically calculated every 8 hours. Traders pay or receive funding depending on their position (long or short).
• Scenario: On BitTap, if long positions dominate, longs will pay a funding rate to shorts to maintain balance.

1. Closing a Position

• Explanation: Closing a position involves executing a trade opposite to the one you hold to settle the trade.
• Scenario: If you hold a long position in Bitcoin, you sell to close the position when the price reaches your target, securing your profit.

By understanding these terminologies, traders can effectively manage their trades and risks on platforms like BitTap, helping them navigate futures trading confidently.

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