Delivery contracts
Delivery Contracts: A Beginner's Guide
Welcome to the world of cryptocurrency trading! This guide will walk you through *delivery contracts*, also known as perpetual contracts or futures contracts, a more advanced way to trade crypto than simply buying and holding Spot Trading. Don't worry if this sounds complicated – we'll break it down step-by-step.
What are Delivery Contracts?
Imagine you want to buy 1 Bitcoin (BTC) in three months. Instead of buying it *now* and storing it, you could enter into an agreement with someone to buy it at a specific price on a specific date in the future. That agreement is a type of delivery contract.
In the crypto world, delivery contracts let you trade the *value* of an asset without actually owning the asset itself. They're agreements to buy or sell a certain amount of cryptocurrency at a predetermined price on a future date (though 'perpetual' contracts, which are very common, don't have a fixed expiry date).
Here’s the core idea:
- **Contract:** An agreement between two parties.
- **Underlying Asset:** The cryptocurrency the contract is based on (e.g., Bitcoin, Ethereum Ethereum).
- **Price:** The agreed-upon price for the cryptocurrency.
- **Expiry Date (for Futures):** The date the contract settles (Perpetual contracts don't have this).
- **Leverage:** This is where it gets interesting (and potentially risky!). Leverage allows you to control a larger position with a smaller amount of capital.
Key Terms Explained
Let’s define some important terms:
- **Long Position:** Betting that the price of the cryptocurrency will *increase*. You *buy* a contract.
- **Short Position:** Betting that the price of the cryptocurrency will *decrease*. You *sell* a contract.
- **Margin:** The amount of money you need to put up as collateral to open a position.
- **Leverage:** A multiplier that amplifies your potential profits *and* losses. For example, 10x leverage means you control 10 times the amount of cryptocurrency with your margin.
- **Funding Rate:** A periodic payment exchanged between long and short position holders, determined by the difference between the perpetual contract price and the Spot Price.
- **Liquidation Price:** The price at which your position will be automatically closed to prevent further losses. This happens if the market moves against you and your margin falls below a certain level.
- **Mark Price:** An average price used to calculate unrealized profit and loss, and to prevent Market Manipulation.
How do Delivery Contracts Work? (Example)
Let’s say Bitcoin is trading at $60,000. You believe it will go up.
1. You open a *long* position using a delivery contract with 10x leverage, using $1,000 as margin. This means you control the equivalent of $10,000 worth of Bitcoin. 2. Bitcoin's price rises to $65,000. 3. Your profit is calculated on the $10,000 position, not just your $1,000 margin. 4. You close the contract, realizing a significant profit (minus fees).
- Important:** If Bitcoin’s price had fallen to, say, $55,000, you would have incurred a significant loss, and potentially been *liquidated* (your position automatically closed).
Perpetual vs. Futures Contracts
The two main types of delivery contracts are perpetual and futures contracts. Here's a quick comparison:
| Feature | Perpetual Contract | Futures Contract |
|---|---|---|
| Expiry Date | No expiry date; contract remains open indefinitely. | Has a specific expiry date. |
| Funding Rate | Yes; periodic payments exchanged between longs and shorts. | No funding rate. |
| Settlement | No physical delivery of the asset. | Typically settled with physical delivery of the asset or cash settlement. |
Perpetual contracts are much more popular for active trading due to their flexibility.
Trading Platforms & Practical Steps
You'll need a cryptocurrency exchange that offers delivery contracts. Some popular options include:
- Register now Binance Futures
- Start trading Bybit
- Join BingX BingX
- Open account Bybit (alternative link)
- BitMEX BitMEX
Here’s a simplified step-by-step guide:
1. **Create an Account:** Sign up with a reputable exchange. 2. **Deposit Funds:** Deposit cryptocurrency (like USDT or USDC) into your futures wallet. 3. **Choose a Contract:** Select the cryptocurrency you want to trade (e.g., BTCUSD, ETHUSD). 4. **Select Leverage:** Carefully choose your leverage. *Start with low leverage (2x or 3x) until you understand the risks.* 5. **Go Long or Short:** Decide whether you think the price will go up (long) or down (short). 6. **Set Stop-Loss:** *This is crucial!* A stop-loss order automatically closes your position if the price moves against you, limiting your losses. Learn more about Risk Management. 7. **Monitor Your Position:** Keep a close eye on your margin and liquidation price.
Risks of Delivery Contracts
Delivery contracts are powerful tools, but they are also very risky.
- **Leverage:** While it can amplify profits, it also magnifies losses.
- **Liquidation:** You can lose your entire margin if the market moves against you.
- **Funding Rates:** These can eat into your profits, especially if you hold a position for a long time.
- **Volatility:** The cryptocurrency market is highly volatile, and prices can change rapidly.
Comparison: Spot Trading vs. Delivery Contracts
| Feature | Spot Trading | Delivery Contracts |
|---|---|---|
| Ownership | You own the underlying cryptocurrency. | You trade the value of the cryptocurrency without owning it. |
| Leverage | Typically no leverage. | Offers significant leverage. |
| Risk | Generally lower risk. | Higher risk due to leverage and potential liquidation. |
| Complexity | Simpler to understand. | More complex; requires understanding of margin, leverage, and funding rates. |
Further Learning
- Technical Analysis – Learn how to read charts and identify trading patterns.
- Trading Volume Analysis – Understand how trading volume can indicate market strength or weakness.
- Candlestick Patterns - A key part of technical analysis.
- Order Types – Learn about different ways to place trades (limit orders, market orders, etc.).
- Margin Trading - A closer look at how margin works.
- Risk Management – Essential for protecting your capital.
- Trading Strategies - Explore different approaches to trading.
- Market Manipulation – Be aware of potential scams and unethical practices.
- Funding Rate Explained - A deeper dive into funding rates.
- Liquidation Explained - Understanding the risks of liquidation.
- Derivatives Trading – A broader look at derivative products.
This guide is just a starting point. Always do your own research and practice with small amounts of capital before trading with larger sums. Remember to prioritize risk management and never invest more than you can afford to lose.
Recommended Crypto Exchanges
| Exchange | Features | Sign Up |
|---|---|---|
| Binance | Largest exchange, 500+ coins | Sign Up - Register Now - CashBack 10% SPOT and Futures |
| BingX Futures | Copy trading | Join BingX - A lot of bonuses for registration on this exchange |
Start Trading Now
- Register on Binance (Recommended for beginners)
- Try Bybit (For futures trading)
Learn More
Join our Telegram community: @Crypto_futurestrading
⚠️ *Disclaimer: Cryptocurrency trading involves risk. Only invest what you can afford to lose.* ⚠️