CoinEx | You Ask We Answer Vol.7: Twitter Q&A
On April 8th, CoinEx organized an Q&A Session on Twitter. Users were encouraged to ask any question about Futures Trading. Hundreds of comments were received, and here we’ve selected some of them to answer. Each selected asker is rewarded a $50 contract cash voucher.
1. @unometralica: As someone who has never used futures in crypto, do you have a working system to ease and assist newcomers in participating to futures trading in your platform?
CoinEx has made multiple product adjustments to help beginners get started with futures right away. To begin with, the exchange provides a simple & straightforward futures webpage that helps users check the present market conditions and existing orders with ease. Secondly, before starting a futures position, users can learn how to trade futures via the Futures Tutorial provided on the webpage by watching the tutorial video and completing the quiz. The tutorial is designed to help beginners get familiar with the process of futures trading as quickly as possible.
Meanwhile, CoinEx also offers a professional, all-encompassing Help Center that allows users to dive right into futures through simple illustrated articles and videos. Moreover, users may also search for new futures jargon through the Help Center.
In addition to user-friendly interactions and all-inclusive futures tutorials, CoinEx has also introduced multiple mechanisms like Auto-deleveraging (ADL) and the Insurance Fund. On CoinEx, the Futures Index Price, which is a more reasonable price mechanism with built-in exception-processing logic, prevents malicious forced liquidation as a result of price manipulation. In short, CoinEx meets a wide range of user demands and helps users trade futures with confidence.
2. @Ava_shoja: What is leverage and line trading? I have been wanting to trade futures for more than a year, but because they say it is risky, it is better to do spot trading. Futures trading is ambiguous for me. Where can I start to learn trades?
Although futures trading is indeed riskier than spot trading, the primary goal of trading futures is to improve one’s capital efficiency. To be more specific, with leverage, we can multiply our principal to increase our capital efficiency. For example, a principal of 10 USDT can be multiplied with a 100X leverage ratio to start a 1,000 USDT position.
Users who are willing to take the risks and try earning higher profits can trade futures. They can also find out more about futures at our Help Center https://support.coinex.com/hc/en-us/categories/360001448453-Futures-Contract before trading.
In addition, users can easily find the Futures Tutorial on CoinEx’s futures webpage to get familiar with futures trading right away. We advise new traders to start a small position with a low leverage ratio at the beginning and move on to more advanced arbitrage operations when they become more skilled at futures trading.
3. @cv_oi0: Why is futures trading necessary in the first place? I don’t think it will add value to the product, but it seems that it is only for the purpose of zero-sum games. Want to know the significance?
Indeed, the futures market is a zero-sum game as it does not generate any profits. However, this does not mean that futures trading is pointless. After all, financial derivatives are invented to improve capital efficiency and solve insufficient market liquidity. Users can also tap into futures to hedge against the risks they face, which is just the aim of futures. For example, some miners worry that the BTC price might fall in the short term, which will lower their profits. Such users could go short on BTC through futures to hedge against the risk of the potential price drop concerning Bitcoins they would mine in the future.
4. @Rozmina17: Please explain the difference between a linear contract and a reverse contract.
In markets of futures, contracts are normally divided into linear contracts and inverse contracts. In the crypto market, linear contracts are also known as USDT-margined contracts or stablecoin-margined contracts as they are priced in USDT, while inverse contracts are also called coin-margined contracts. The greatest difference between the two is that linear contracts are USDT-margined, while inverse contracts are margined by trading coins like BTC.
In markets of linear contracts, all contracts use USDT as the margin, and users only need to hold USDT to trade. On the other hand, inverse contracts are margined by trading coins like BTC and ETH, and users must hold the corresponding coin to trade in a market. For instance, in the BTCUSD inverse contract market, you should deposit BTC as the margin. Simply put, when it comes to linear contracts, holding USDT will grant you access to all markets where linear contracts are traded, while you are required to hold the specified type of coin when trading inverse contracts. Plus, the profits you’ve earned will also be settled in the specified type of coin.
5. @AminurIslamshe2: What is the difference between index price and market price?
Futures involve three prices: the Latest Executed Price, Index Price, and Mark Price. The Latest Execution Price refers to the price at which the latest order (the last order of the execution list on the futures page) was executed in the market. Index Price is a mechanism introduced by crypto exchanges that help prevent losses arising from abnormal price fluctuations on a single platform. It is often determined according to the spot price of multiple exchanges through weighted calculation. Therefore, the price reflects the true market price more fairly. The Mark Price introduces the Funding Fee based on the Index Price, which makes it a more reasonable estimation of the futures price. Most exchanges rely on the Mark Price as the basis for futures liquidation to protect users’ rights and stabilize the futures market.
6. @yugiam06: Why in futures trading, every coin is settled by USDT? But in spot trading, coin can be settled by different coins like BTC and ETH?
In addition to linear contracts settled in USDT, CoinEx also features inverse contracts that are margined by coins like BTC. USDT-margined contracts are the mainstream choice in the present futures market. In its essence, trading a futures contract means predicting the future price trend of a cryptocurrency, which differs from the swapping-oriented spot trading (e.g. BTC-ETH). Moreover, spot trading priced in USDT is subject to wild price fluctuations due to insufficient trading volume or poor liquidity, which magnifies the risks facing the average user.
7. @srvmsrvm23: How should be aware of risk control in futures trading? What are the benefits differ from spot trading?
When trading futures, one should keep the funding ratio within a reasonable range. If a trader is not sure how the price may change, he should avoid trading futures or start a small position. In addition, traders should also take profits and stop losses in time to make sure that the losses do not exceed the acceptable amount. Meanwhile, traders should remain rational after losses and refrain from seeking “revenge” (i.e. opening multiple large positions just to recover the losses). Such emotional trades are more likely to lead to forced liquidation, resulting in unavoidable losses.
8. @Bnc6661: When I enter the buy price the liquidation price is not showing after the trade starts then only we can see the liquidation, why can’t I see the liquidation before the trade.
Before trading futures on CoinEx, users can check the liquidation price using the Calculator provided on the futures webpage. After a position is opened, they can find out about the liquidation price of the contract in Position Details.
9. @AdiPrab10410697: What should we do before trading futures in order to make a profit? how do we analyze a coin that is right for futures?
Traders should control the risks within an acceptable range when starting a position and choose a reasonable leverage ratio according to their financial status. Moreover, they should always set a SL price in advance. At the same time, one should remain calm when suffering losses, and if a trader is confident in his price predictions, then he can also increase the position to lower the risks.
On the other hand, if a trader is not sure how the price might change, he should close his position in time and place an order when the trend becomes clearer. Additionally, it is always sensible to learn more hedging methods and work out a sound trading strategy relying on multiple products like margin trading and spot trading. The essential goal of futures trading is to lock in the profits and lower the losses to earn higher returns.
10. @Crypt765: How we can manage/choose a leverage for a trade at some point in the market?
When choosing a leverage ratio, futures traders should account for the available fund. If a trader is not risk-tolerant, then he should go for a low leverage ratio; if the trader is confident about the future price trend, he could always set a higher leverage ratio as appropriate.
11. @BDeztiny: Can I change leverage on open position?
At the moment, CoinEx users cannot change their leverage on open positions.
12. @cogne0589: Please tell me about Calculation of Liquidation Price on CoinEx?
Let us go through one example. Suppose we start a long position of 1 BTC with a 10X leverage ratio when the BTC price stands at 30,000 USDT. We then deposit an Initial Margin of 3,000 USDT, with an Available Margin of 2,000 USDT in the account. At this point, the BTC price falls by 5%, and the Mark Price now stands at 28,500 USDT. In the meantime, no Margin is manually added. For the convenience of calculation, transaction fees will not be included below. At this point,
The Unrealized PNL = Position Amount * (Mark Price — Avg. Opening Price) = 1*(28,500–30,000) = -1,500 USDT;
The Position Margin = Opening Price + Increased Margin — Decreased Margin + Unrealized PNL = 3,000–1,500 = 1,500 USDT;
Under the Isolated Margin mode, Margin Rate = (Position Margin)/Open Value = 1,500/30,000 = 5%;
Under the Cross Margin mode, Margin Rate = (Available Margin + Position Margin)/Open Value = (1,500+2,000)/30,000=11.67%.
According to the official CoinEx website, the Maintenance Margin Rate is 0.50% when the position level falls between 0–10 BTC, which indicates a Margin Rate of 0.50%. Therefore, the system will liquidate the position. We can then calculate the Liquidation Price in the above case.
Maintenance Margin = Open Value * Maintenance Margin Rate = 30,000*0.50% = 150 USDT
Under the Isolated Margin mode, the Unrealized PNL = Maintenance Margin — Initial Margin = 150–3,000 = -2,850 USDT; the Liquidation Price = Unrealized PNL/Position Amount + Avg. Opening Price = 27,150 USDT;
Under the Cross Margin mode, the Unrealized PNL = Maintenance Margin — Initial Margin — Available Margin = -4,850 USDT; the Liquidation Price = Unrealized PNL/Position Amount + Avg. Opening Price = 25,150 USDT
You can also use the Calculator function on CoinEx to determine the liquidation price.
13. @iman45404171: How can we use stop loss in future trading in CoinEx app?
You can go to CoinEx’s Help Center to find out about how the TP & SL function is used. Click on the link below and follow the illustrated guides step by step: https://support.coinex.com/hc/en-us/articles/4408436566809-How-to-Take-Profit-Stop-Loss-in-Futures-Trading-
14. @Shreyas14971738: Do you have a plan to do some promotional activity to attract more future traders?