BingX is a global cryptocurrency social trading platform that aims to provide users with simple, easy-to-use and professional derivatives trading products and services.
The BingX platform offers BTC, ETH, and other cryptocurrency contract trading products, global indices, and automated copy ordering services.
BingX protects the interests of users and provides users with a fair and just trading environment and the ultimate trading experience.
Understanding Cryptocurrency Spot and Derivatives Trading
The cryptocurrency market operates 24/7, which means that you can buy and sell cryptocurrencies anytime, anywhere, so understanding trading in the cryptocurrency market is crucial.
We will introduce the two most important financial instruments of cryptocurrencies: “spot” and “derivatives” Products”, laying the foundation for you to start trading.
First of all, with BingX you can trade 3 types of product as follows:
- Spot
- Over 350+ coins available. Buy and sell quickly with automatic calculation of average cost and PnL.
- Futures
- Supports long/short positions with leverage and profit of up to 150x from market volatilites.
- Grid Trading
- Create your personal trading strategy and profit 24/7 with spot grid and futures grid trading.
1. What is spot trading
Spot trading is a transaction that buys and sells cryptocurrencies with instant delivery.
Delivery means that both the buyer and the seller fulfill their commitment to the transaction.
The characteristic of spot trading is that when the transaction is successfully matched, the buyer and the seller immediately deliver the commodity, which meets the current trading needs of the buyer and seller.
Suppose the current spot price of Bitcoin is $40,000, and a buyer buys a BTC in the spot market, which costs $40,000.
Assume that after one month, the price of Bitcoin rises to USD 60,000.
If the buyer closes the position, according to “Profit and Loss = (Close Price – Open Price) * Transaction Quantity”, (60,000-40,000) * 1 = USD 20,000, at this time Buyer “profits” $20,000.
Assume that after one month, the price of Bitcoin drops to $20,000.
If the buyer closes the position, according to “Profit and Loss = (Closing Price – Opening Price) * Transaction Quantity”, (20,000-40,000)*1= -20,000 USD, this The buyer “loses” $20,000.
2. How to trade spot on BingX
The K-line service of BingX contracts refers to the spot market of many mainstream exchanges as the basic market, and integrates the spot market to obtain an absolutely fair K-line.
If you want to trade in the spot market through BingX, you can use the BingX app “Buy/Sell-Spot” or the BingX official website, click “Spot” Trading.
3. What is Derivative Trading?
Before the birth of cryptocurrencies, derivatives were already a popular financial tool in the traditional financial industry.
Derivatives can cover a wide range of assets such as stocks, bonds, commodities, currencies, market indices, and financial products of underlying instruments such as cryptocurrencies.
Unlike spot trading, derivatives offer the option of leveraged trading, allowing investors to expand their potential profits.
Of course, it should be noted that trading on margin (users use borrowed funds to trade) also increases investment risk, and the margin may be liquidated. Therefore, derivatives are also considered as high-risk assets.
Derivatives are financial contracts between two or more parties whose value is derived from a single or group of underlying assets.
Derivatives include futures contracts, options, warrants, forwards contracts, swaps, etc.
Different derivative financial products have different transaction methods and uses.
At present, the mainstream derivatives in the cryptocurrency market are: futures contracts, perpetual contracts, and options contracts.
4. What is a futures contract (Futures)
Futures contracts are an earlier derivative product launched in the cryptocurrency market and are currently the derivative with the highest trading volume.
There are two types of futures contracts in the cryptocurrency market: delivery contracts and perpetual contracts, and perpetual contracts are currently the most popular product in the cryptocurrency market.
Futures contracts are leveraged for margin trading, which allows them to take higher risks and gain profits from the price fluctuations of different investment targets.
Margin trading is that investors conduct margin trading with trusts provided by brokers or exchanges. Margin trading uses the principle of leveraged investment.
Leveraged trading can use small funds as security funds to magnify your potential profits while trading. Amplify your potential loss risk and enable small capital investors to trade in financial markets.
Unlike the spot market, you trade contracts in the futures market, but you don’t actually own the underlying asset.
In fact, futures contracts are created to avoid market volatility.
When you trade a BTC/USDT contract, you are not actually buying or selling BTC, you are trading based on the predicted value of BTC.
In other words, you are betting on a BTC price movement parallel to the contract value without owning the asset. In short, a contract is a derivative of encrypted assets.
Users can choose to buy long or sell short contracts to obtain the benefits of rising/falling digital asset prices by judging the rise and fall.
In the cryptocurrency market, from the type of margin trading, contracts can be divided into USDT standard and currency standard.
- USDT standard
- USDT standard is also called “Tether”. When opening a position and the final delivery, USDT is used for trading. No matter whether the contract is long or short, you only need to recharge USDT in the contract account, and the final profit or loss will be settled in USDT.
- Currency
- standard Currency means that when opening a position and final delivery, the corresponding cryptocurrency is used for transactions. For example, if you want to go long or short BTC, you need to recharge BTC in the contract account, and the final loss or gain will be settled in BTC.
General investors can choose the contract type according to the different trends.
Generally speaking, when the short-term market is rising, they can choose to long the currency standard contract; when the short-term market is falling, they choose to short the USDT standard contract.
5. What is perpetual contract
Perpetual contract is an innovative derivative in the cryptocurrency market, which is similar to the delivery contract.
However, there is no delivery date for perpetual contracts, and users can hold them all the time.
In order to ensure the long-term convergence between the perpetual contract price and the spot underlying price, exchanges basically use the funding rate method.
Funding rate refers to the settlement of funds between all longs and shorts in the perpetual contract market, which is settled every 8 hours. If the rate is positive, longs pay shorts; if negative, shorts pay longs.
Think of it as a fee for the trader to hold a contract position, or a refund.
This mechanism can balance the demand for perpetual contracts between buyers and sellers, so that the price of perpetual contracts is basically consistent with the price of the underlying asset.
The perpetual contract model is currently the mainstream of cryptocurrency exchanges, with a leverage ratio of up to 125 times, and it is also the most popular derivative in the market today.
From a trading point of view, a contract can be opened from two directions, namely “long” and “short”.
- Go long = Buy
- When you think the value of the contract or the price of the currency will rise in the future, you can choose to go long the contract, and if the price of the currency rises in the future, you can make a profit.
- Go Short = Sell
- When you think the value of the contract or the currency price will fall in the future, you can choose to short the contract, and if the currency price falls in the future, you can also make a profit.
Example 1
Suppose a buyer thinks that the price of Bitcoin will rise in the future, buys a “5x long” contract and chooses “isolated position”, the following situations will occur:
When the price of Bitcoin rises by 10%, the buyer closes Position, profit 50%.
When the price of bitcoin drops by 10%, the buyer closes the position, and the loss is 50%; when the price of bitcoin drops by 20%, the buyer liquidates the position, and the loss is 100%.
In the case of “isolated position”, Buyer’s deposit is reset to zero.
Example 2
Suppose a buyer believes that the price of Bitcoin will fall in the future, buy a contract with “5 times short” and choose “isolated position”, the following situations will occur:
When the price of Bitcoin drops by 10%, the buyer closes the position , 50% profit.
When the price of Bitcoin rises by 10%, the buyer closes the position, and the loss is 50%; when the price of Bitcoin rises by 20%, the buyer closes the position, and the loss is 100%.
In the case of “isolated position”, buy Home security returns to zero.
6. What is an option contract?
An option contract is a derivative product that gives traders the right to buy or sell an asset at a specific price in the future, but not the obligation. The main difference between futures contracts and options contracts is that traders are not obligated to settle options contracts.
Options contracts (or options) are very similar to futures in that they also include an agreement between two parties to buy or sell a cryptocurrency at a predetermined price and date.
However, the main difference between these two derivatives is that the holder does not necessarily have to exercise their right to buy or sell on the expiry date. To enter into an options contract, a trader must pay a premium.
If they don’t want to exercise their rights at the end of the contract, they still have to pay a premium.
The cryptocurrency market has innovated the way options contracts allow traders to trade options for a shorter specified period of time.
Options contracts can be divided into two types: call options and put options:
- A call option
- Buys a specific amount of a cryptocurrency at a specific price for a certain period or point in time in the future.
- A put option
- Sells a specific amount of a cryptocurrency at a specific price within a certain time period or point in the future.
Example 1
Suppose that the current BTC price is $60,000, and the buyer buys a call option with a strike price of 70,000 and spends $200 in premium to buy it.
Assume that the price of Bitcoin rises to $80,000 at expiration.
If the buyer exercises the option, according to “Profit and Loss = Bitcoin Spot Price – Exercise Price – Premium”, “(80,000–70,000)-200 = $9,800”, At this point the buyer “profits” $9,800.
Assume that the price of Bitcoin falls to $50,000 at expiration.
If the buyer exercises the option, according to “Profit and Loss = Bitcoin Spot Price – Exercise Price – Premium”, “(50,000–70,000)-200= -20,200 USD” , the buyer “loses” $20,200.
However, an option has an important feature that “when the buyer buys the option, he buys a right to exercise, and the buyer can choose not to exercise when it expires”, so if the buyer chooses not to exercise at expiration, only $200 in premium will be lost.
7. How to conduct derivatives trading on BingX
As the world’s leading derivatives trading platform, BingX provides the ultimate derivatives trading services, mainly including standard contracts and professional contracts, to provide ordinary and advanced cryptocurrency investors with suitable services.
The standard contract supports USDT standard and currency standard.
It is easy to use and suitable for novice or ordinary investors to get started easily.
Professional contracts currently support the USDT standard, and users can complete stricter price limit strategies, position management, etc., suitable for advanced investors.
You can click on the BingX official website to select the contract trading for standard contract or professional contract trading, or download the BingX official application for contract trading.
Please check BingX official website or contact the customer support with regard to the latest information and more accurate details.
BingX official website is here.
Please click "Introduction of BingX", if you want to know the details and the company information of BingX.
Comment by Hans
April 24, 2024
as I am trading here various assets, for me it's the most important feature. i mean, flexibility in tradable markets. i alternate trading styles, meaning that sometimes I trad...