Learn Futures to Get 25$ Bonus!
In this video our YouTube Host Mark will guide you through principles of futures trading, how to perform such orders and what MEXC offers exclusively for futures traders.
In our previous season of Learn & Earn we’ve been talking about Spot, Margin and ETF trading. However, today, we’re going to tackle something even more exciting and that’s Futures Trading.
What are Futures?
Futures is a derivative trading product that provides high leverage, up to 125X! Leverage allows for better capital efficiency as traders do not have to lock up entire amounts of capital. However, it increases both potential returns and risks, so traders must always exercise caution.
In a futures market, two counterparties will trade a contract, not a physical or digital asset, but a contract that defines the settlement at a future date. There’s a special type of futures contract called perpetual futures contract, which is quite common in the crypto market. Unlike the traditional form of futures, it doesn’t have an expiry date. So one can hold a position for as long as they like. I’ll share more details later on.
Why trade Futures in the first place?
- Leverage: you can enter a larger position with only a fraction of its total cost.
- Short Exposure: futures trading allows you to bet against the market by shorting it.
- Hedging: futures trading can be used to hedge against spot markets, which is great for any investment portfolio.
Let’s see how this works in practice.
Log into your MEXC account, go to “Derivatives” at the top of the page and click on the “Futures” tab. Then, click on the “Accept and Continue” button to activate your MEXC Futures account. And, you’re ready to trade futures!
Index Price and Fair Price
- The index price is a price derived from a bucket of prices of the major spot market exchanges, while the fair price is calculated based on the index price and the funding data.
- The fair price is designed to avoid spikes and unnecessary liquidation during periods of high volatility, which is often a trader’s biggest concern. MEXC Futures calculates liquidation prices based on the fair price instead of the latest transaction price, thereby avoiding unnecessary liquidation.
MEXC Futures supports Cross Margin and Isolated Margin trading.
The selection of either mode will affect the margin balance calculation of your positions. The Margin Balance is your MEXC Futures account balance, including your unrealized PnL (Profit and Loss). So, your profits and losses will cause the Margin Balance value to change.
By using the Cross Margin mode, the balance will be shared across all your positions. And by using the Isolated Margin mode, this balance can be allocated to each individual position.
Liquidation
Liquidation happens when your Margin Balance falls below the required Maintenance Margin. The Maintenance Margin is the minimum value you need to keep your positions open. It varies according to the size of your positions. Larger positions require a higher Maintenance Margin.
When liquidation happens, all of your open orders are canceled. Ideally, you should keep track of your positions to avoid auto-liquidation, which comes with an additional fee. If your position is close to being liquidated, it may be beneficial to consider manually closing the position instead of waiting for the auto-liquidation.
Let us give you an example: you start with $100. You enter a leveraged long position in the BTC/USDT Perpetual Contract with 10x leverage, meaning your position size will be $1000 which consists of your $100 plus $900 that you’ve borrowed.
What if the price of Bitcoin goes down by 10%?
Well, the position is now worth $900. If the position incurred further losses, those would apply to the borrowed funds. The lender of those funds won’t risk a loss on your behalf, so they liquidate your position to protect their capital. This means that the position is closed, and you’ve lost your initial capital of $100.
Liquidation is one of the risks of Futures Trading, so make sure to use high leverage only once you get a grip of the concept and have enough trading experience to do so.
You can choose the amount of leverage that could be applied on your open position all the way up to 125X whether you are trading long or short for both Isolated and Cross-Margin. Again, if you mastered Leveraged trading and are sure in what you’re doing you could be profiting big time from such leverage. So let’s use MEXC’s calculator to get an idea of your potential profits.
If let’s say you would buy BTC at a price of $40k and sell at $45k with 125X leverage with the position size being 10,000 contracts or in other words 1 BTC, then you would need to invest 320 USDT of your own and as a result you would get 5,000 USDT of earnings which would be a 1,562.50% yield.
Additionally, you can turn on Stop Loss or Take Profit and set a price at which you would like to close the position once it hits a specific price.
Great, now that you did the math on your potential earnings, you simply choose Market, input the amount that you are ready to invest and click either Long or Short with the desired leverage.
