Contract trading, also known as margin trading, is a type of derivative — a financial instrument that derives value from the spot value of a crypto asset. If you want to know how to trade contracts, this article is for you.
How to Trade Contracts?
Let's use Phemex platform for this demonstration. To trade contracts, follow this step-by-step guide:
1) Deposit crypto
Register an account and deposit crypto to trade on the exchange. All users can deposit crypto assets like Bitcoin, Ethereum (ETH), Solana (SOL), Cardano (ADA), and 50 other cryptos.
2) Convert spot to contract
Phemex crypto assets are stored in the spot trading account. Spot assets have to be transferred to the contract trading account to trade contracts. Press on “Assets” in the top-right corner and then navigate the “Contracts Trade Account”.
Under the contracts trade account, you can press “Fund BTC trade account” or “Fund USD trade account” to transfer your assets.
A new window will pop-up prompting you to choose which spot wallet you want to convert to USD value.
Click on “All” to transfer all assets to your spot account. Then get a quote for the latest price conversion and hit “Confirm”.
3) Pick futures
Phemex has 39 futures contracts available for trade. Visit contract markets to get started. Click on “Trade” for any of these contracts and you will be taken to the trading page.
4) Open a position
Here, we chose the BTC perpetual futures contract. In the top-left corner, you will see a trading panel where you can input custom settings for your trade. Press on “Market” to check the current rate for each contract.
Next to “Quantity,” you can find the current price of contracts. If 1 contract is worth 0.001 BTC, each contract is worth $40. On other perpetual contracts such as LINK, the contract may be worth 0.2 LINK. The price per contract varies by the crypto.
Use the sliders on the left to adjust the quantity and the leverage. Then, click on “Buy” and a confirmation window will appear allowing us to set our take profit and stop losses. We can adjust our take profits and stop losses optionally.
Press “Confirm” and your trade will go live. A confirmation window will appear near the bottom-right.
5) Start trading
The position data will be updated in real-time below the Bitcoin perpetual chart. Under the “Open Positions” menu, you can monitor your recent trades.
The following are the most important parameters:
- Symbol: Contract we are currently trading.
- Size: Total amount of contracts purchased.
- Entry price: The spot price of Bitcoin when we entered the trade.
- Mark price: A real-time mark price for the contract that is used to calculate PnL gains and losses.
- Unrealized PnL: The unrealized “Profit and Loss” shows us how much we're in profit or how much we're losing.
- Realized PnL: Realized PnL calculates realized profit and subtracts fees owed to the exchange.
- If you are ready to close your position, you can press “Market” and sell the contracts. If you want to delay your sale at a further price point, you can press “Limit Order” and input custom price parameters. The funds from the sale will be automatically deposited into your account.
