Basic Concepts
1. Why do inverse contracts use USD as the quote currency instead of USDT?
Inverse contracts use USD as the quote currency to streamline transactions and settlements, eliminating the need for an additional currency. This approach also mitigates price fluctuations associated with USDT exchange rates.
🔗 Learn more: What are Linear and Inverse Contracts?
2. How do you go long and short with futures contracts?
To go long, you buy a futures contract if you anticipate a price increase. If your prediction is correct, you profit; otherwise, you incur a loss. Going short (selling) is the opposite.
🔗 Learn more:
Linear Contract Trading Tutorials (Web｜App)
Inverse Contract Trading Tutorials (Web｜App)
3. Why does futures trading amplify profits and losses (PNL) compared to spot trading?
The primary distinction between futures and spot trading is the trading mechanism. Futures trading employs leverage and a two-way trading model, allowing you to trade an amount greater than your available capital by depositing only a portion as margin.
For example, with the CoinEx BTC contract valued at $1, if Alan plans to buy $10,000 worth of BTC, that is 10,000 contracts:
- Without leverage, he would need $10,000 to buy BTC.
- With a 10% margin, he only needs to deposit $1,000, amplifying his capital by 10 times.
- Similarly, with a 1% margin, he only needs $100 to amplify his capital by 100 times.
🔗 Learn more:
What are the Differences Among Spot Trading, Margin Trading and Futures Trading
Differences Between Futures and Spot Trading
Trading Operations
1. How do you close a position after opening one?
You can close a position in two ways:
- Select [Close] or [Liquidate] under the “Current Position” list.
- Submit an order in the opposite direction, which will be deemed as a closing order. If the order quantity exceeds your current position, a reverse position will be opened. Using [Liquidate] will close all of your current positions.
2. 2. Why is realized PNL after closing different from unrealized PNL before closing?
To prevent malicious market manipulation, CoinEx calculates unrealized PNL using the mark price, while realized PNL is based on the actual closing price. Therefore, discrepancies may arise between unrealized and realized PNL when the mark price differs from the platform's closing price.
3. Why are TP/SL important? How do you set them?
Take profit and stop loss are vital risk management tools in futures trading. Setting these orders helps lock in profits and limit losses, avoiding excessive losses caused by market volatility or emotional decisions.
- Take Profit: Automatically locks in predetermined profits.
- Stop Loss: Limits the maximum loss.
🔗 Learn more:
Introduction to Futures Take-Profit and Stop-Loss (TP/SL)
Introduction to Futures Pyramiding Auto-Settlement
4. Why does forced liquidation occur?
(1) Traders must maintain a certain percentage of their position's value as margin, known as the maintenance margin. If your position margin falls below this threshold, forced liquidation will be triggered.
(2) CoinEx uses the mark price mechanism to reduce forced liquidation risks from market manipulation or low liquidity. Liquidation occurs only when the mark price drops below the liquidation price for long positions or rises above it for short positions.
(3) If forced liquidation occurs, your position will be taken over and liquidated at the bankruptcy price in the market, while all pending orders using the same margin currency will be canceled, including TP/SL orders, limit orders, stop-limit orders, and stop-market orders.
🔗 Learn more:
What is Tiered Maintenance Margin
How to Reduce Futures Liquidation Risk
5. Why are funding fees charged?
(1) CoinEx perpetual contracts use the funding fee mechanism to align the futures prices with the spot prices of the underlying assets, preventing significant deviations between these prices.
(2) Funding fees are calculated every minute and are paid or charged every 8 hours by default. You only incur funding fees if you hold a position at the settlement time of the funding fees. The settlement cycle is linked to the market premium rate, which may adjust dynamically to 4 or 2 hours if the market premium rate is too high.
(3) When the funding rate is positive, longs pay funding fees to shorts, and vice versa when the rate is negative.
Note: Fees are transferred between traders; CoinEx charges no additional fees.
🔗 Learn more: Introduction to Futures Funding Fees
Special Mechanisms
1. What is Mark Price, and what is it for?
(1) The mark price is calculated based on the index price and a moving average premium index. It is used to determine whether a position triggers forced liquidation.
(2) CoinEx's fair mark price system ensures the mark price reflects a fair value rather than the latest transaction price, reducing unnecessary forced liquidations from market manipulation or low liquidity.
Note: The mark price only affects liquidation prices and unrealized PNL. It does not affect realized PNL.
🔗 Learn more: What is Mark Price
2. What is Insurance Fund, and what is it for?
(1) After forced liquidation is triggered, the system initiates a Dutch auction to close the position in the market. Any remaining equity after the liquidation is transferred into the Futures Insurance Fund.
A Dutch auction is a bidding process where the auctioneer starts with a high price and progressively decreases it until a bidder accepts the offer. The winning bidder obtains the object and pays the price at which it was accepted.
(2) CoinEx uses the insurance fund to avoid auto-deleveraging of positions. If forced liquidation occurs, the system uses a Dutch auction to match orders in the market and covers any excess losses with the insurance fund.
🔗 Learn more: What is Insurance Fund
3. Why does Auto-Deleveraging (ADL) occur?
(1) When forced liquidation is triggered, the trader's positions will be taken over by the CoinEx liquidation system. If the position is liquidated at a price worse than the bankruptcy price, the system will use the insurance fund to cover any excess loss incurred from the liquidation.
(2) If the Insurance Fund is insufficient or market liquidity is too low to fully execute liquidated orders, the system will activate the Auto-Deleveraging (ADL).
(3) When ADL is triggered, the system will close winning positions based on the mark price at the trigger time, by profit and leverage priority.
🔗 Learn more: Introduction to Auto-Deleveraging (ADL) in Futures Trading