Understanding Perpetual Contracts
Before diving into long/short positions, let's clarify what perpetual contracts are. These are derivative contracts with no expiration date, allowing continuous trading until positions are closed or liquidated. They enable leveraged trading, letting traders control larger positions with smaller capital.
Key Features of Perpetual Contracts:
- No expiration: Unlike futures, positions can be held indefinitely.
- Funding rate: Periodic payments between long/short positions to tether contract prices to spot prices.
- High leverage: Typically offers 5x–125x leverage (varies by exchange).
- Margin requirements: Requires maintenance margin to avoid liquidation.
Simplified explanation: Imagine using $10 to control $100 worth of assets via 10x leverage. A 1% price move becomes 10% for your position. While profits amplify, losses do too—a 10% drop would liquidate your $10 margin.
Long vs. Short Positions Explained
Going Long (Buy Low, Sell High)
- Use $10 margin to buy $100 worth of Coin X at $1/coin (100 coins).
- If price rises 10% to $1.10: Sell for $110 → $10 profit (100% ROI).
Going Short (Sell High, Buy Low)
- Borrow and sell 100 Coin X at $1/coin ($100 value).
- If price drops 10% to $0.90: Buy back for $90 → $10 profit.
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Step-by-Step Trading Guide on OKX
1. Locate the Perpetual Contract
- Search for your desired pair (e.g., "ETHUSDT perpetual").
- Confirm it's under the Derivatives/Perpetual section.
2. Analyze Trading Data
- Review order book, funding rate, and historical volatility.
- Click "Trade" to proceed.
3. Execute Your Trade
Key interface elements:
Margin mode:
- Cross margin: Uses entire balance (higher liquidation threshold).
- Isolated margin: Limits risk to allocated funds.
- Leverage slider: Adjust between 1x–125x (20x shown in example).
Order types:
- Limit order: Set entry/exit prices manually.
- Market order: Instant execution (higher fees).
Example: Buying 0.1 ETH at $3,066.68 with 20x leverage:
- Position value: $306.67
- Liquidation price: $3,267.95 (accounting for fees)
Risk Management Essentials
- Stop-loss/Take-profit: Automatically close positions at preset levels.
- Avoid market orders: High fees erode profits.
- Monitor funding rates: Positive rates favor longs; negatives favor shorts.
FAQs:
Q: What leverage is safe for beginners?
A: Start with ≤10x until comfortable with volatility.
Q: Why did my position liquidate before hitting the calculated price?
A: Exchange fees and slippage can trigger early liquidation.
Q: How often are funding payments exchanged?
A: Typically every 8 hours, but check your exchange's schedule.
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Advanced Tips
- Hedging: Use shorts to offset long portfolio risks.
- Ladder orders: Gradually enter/exit positions to average costs.
- Liquidation alerts: Set price warnings via mobile apps.
Remember: Perpetual contracts are high-risk. Never invest more than you can afford to lose, and always use risk management tools.