What is a futures contract?
A futures contract is an agreement to buy and sell commodities, currencies or other assets at a predetermined price at a specific time in the future. Unlike the spot market, transactions in the futures market will not be settled immediately, and buyers and sellers trade a contract that stipulates settlement at a certain time in the future.
In the futures market, users can't buy and sell physical objects directly, and the exchange of physical objects will only happen when the contract expires and is delivered. For example, traditional futures such as wheat and gold are designed for physical delivery. Before these commodities are delivered, there will be storage and transportation costs.
There are also some futures contracts that adopt the design of cash delivery, that is, when the contract expires, there is no physical transaction, but only cash delivery difference.
The price of commodity futures and spot prices may be different. The farther the contract expires, the higher the corresponding storage cost, the higher the price uncertainty, and the greater the price difference between futures and spot.
Why trade futures contracts?
Hedging risk: this is the original intention of inventing futures contracts;
Short selling: users can profit from the decline in asset prices by selling futures of corresponding assets without holding assets;
Leverage: Users can get leverage through futures contracts, holding contracts that exceed their principal value, and the other side futures provide up to 20 times leverage.
What is a perpetual futures contract?
Permanent contract is a special futures contract. Unlike traditional futures, permanent contracts have no expiration date. Therefore, in the transaction of perpetual contracts, users can hold the contracts until they close their positions. In addition, the concept of spot price index is introduced into perpetual contract, and the price of perpetual contract returns to spot price index through corresponding mechanism, so unlike traditional futures, the price of perpetual contract will not deviate too much from spot price most of the time.
What is the initial deposit?
Initial margin is the minimum margin required by users when opening positions. For example, if the initial margin is set to 10% and the user opens a contract with a value of 1 0,000 USD, the required initial margin is 100 USD, that is, the user gets leverage of 10 times. If the available margin in the user's account is less than 100 USD, the opening transaction cannot be completed.
What is a maintenance deposit?
Maintenance margin is the minimum margin required for users to hold corresponding positions. If the user's margin balance is less than the maintenance margin, they will be forced to close their positions. In the above example, if the maintenance margin is 5%, the maintenance margin required by the user to hold a position with a value of $ 1 0,000 is $50. If the maintenance margin of the loss-making user is less than $50, the position held by the user will be closed and the user will lose the corresponding position.