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Definitions and Use Cases of Contract-Related Terms

BitTap
Updated

Summary

Compared to spot trading, contract trading involves more complex terms. Understanding these terms and their use cases can help new users quickly grasp the operations and risks of contract trading. This article introduces key terms in BitTap contract trading to assist beginners in getting started.

  1. Long / Short

    • Long: Buying a contract in anticipation of a price increase, then selling to profit if the price rises.
    • Short: Selling a contract in anticipation of a price decrease, then buying back to profit if the price drops.
    • Use Case: On BitTap, if a user expects Bitcoin's price to rise, they open a long position by buying. If they expect a price drop, they open a short position by selling.

  2. Leverage

    • Explanation: Leverage allows users to amplify their investment returns by borrowing funds, but it also increases potential risks. With less capital, users can control larger positions.
    • Use Case: On BitTap, a user chooses 10x leverage, controlling a position of 1000 USDT with only 100 USDT. A 10% price rise results in a profit of 100 USDT, but a price drop magnifies losses.

  3. Margin

    • Explanation: The funds required to open and maintain a position, divided into initial margin (for opening a position) and maintenance margin (minimum required to hold the position).
    • Use Case: A user opens a Bitcoin contract with 200 USDT on BitTap. If the market moves unfavorably and maintenance margin is insufficient, the system will auto-liquidate the position.

  4. Liquidation

    • Explanation: Automatic closing of a position when the margin falls below the maintenance requirement to prevent greater losses.
    • Use Case: If a user holds a long contract and the market price drops, reducing the account margin, BitTap will forcibly liquidate the position.

  5. Cross Margin / Isolated Margin

    • Cross Margin: All available funds in the account act as margin for all positions.
    • Isolated Margin: Margin is set independently for each position, isolating risk so that one position’s liquidation won’t affect others.
    • Use Case: Users preferring to allocate risk per position may choose isolated margin to prevent one position’s loss from impacting others.

  6. Limit Order / Market Order

    • Limit Order: Sets a buy or sell price, only executed when the market reaches that price.
    • Market Order: Executes immediately at the current market price.
    • Use Case: If a user wants to buy Bitcoin at 30,000 USDT, below the current price of 32,000 USDT, they set a limit order. To execute immediately, they choose a market order.

  7. Take-Profit / Stop-Loss

    • Take-Profit: Automatically closes the position when the target profit is reached.
    • Stop-Loss: Closes the position automatically when the set loss threshold is triggered.
    • Use Case: A user buys BTC at 30,000 USDT, setting a take-profit at 35,000 USDT and a stop-loss at 28,000 USDT. The system auto-closes if either level is reached.

  8. Realized P&L / Unrealized P&L

    • Realized P&L: Actual profit or loss from completed trades.
    • Unrealized P&L: Profit or loss that fluctuates with the market price of an open position.
    • Use Case: Profits from closed trades show in realized P&L, while ongoing position changes appear in unrealized P&L.

  9. Funding Rate

    • Explanation: Adjusts the difference between contract and spot prices, typically calculated every 8 hours, with position holders paying or receiving funding.
    • Use Case: On BitTap, if long contract holders dominate, they pay funding fees to short holders to maintain market balance.

  10. Close Position

  • Explanation: Completing a transaction by buying or selling the opposite contract to the current position.
  • Use Case: A user with a long position can close it when the price reaches the target to lock in profits.