Summary
• Compared to spot trading, futures trading involves more complex professional terms. Understanding these terms and their usage scenarios helps traders become familiar with futures trading more quickly.
• Using Coinstore Perpetual Futures as an example, this article is divided into three parts—before opening a position, during a position, and after closing a position—along with other important terminology. This helps beginners understand what terms and functions are used throughout the trading process.
Key Futures Terminology
Term | Meaning | Usage Scenario |
Long/Short | Long: If expecting prices to rise, click [Buy/Long] → buy low, sell high to profit. Short: If expecting prices to fall, click [Sell/Short] → sell high, buy low to profit. | Before opening a position |
Leverage | High leverage amplifies profits but also increases risk. The higher the leverage, the higher the risk of liquidation. • Beginners/conservative traders: low leverage (2x, 5x) recommended • Experienced traders: may increase leverage | Before opening a position |
Margin/Initial Margin/Maintenance Margin | Margin = Position Value ÷ Leverage • Initial Margin: Minimum funds required to open a position; without it, trading is not possible • Maintenance Margin: Minimum funds required to avoid forced liquidation | Before opening / During |
Position Value | The current value of the open position, which changes in real time with the latest trade price. | During |
Funding Fee/Countdown | Fees exchanged between buyers and sellers every 8 hours at UTC 0:00, 8:00, and 16:00. | Anytime |
Mark Price/Index Price/Last Price | Mark Price: Fair price based on index and funding, used for PnL and liquidation. Index Price: Weighted average of prices from multiple spot exchanges. Last Price: Actual latest trade price. | Before opening / During |
Isolated/Cross Margin | • Isolated: Margin separated by position, losses limited to that position’s margin. • Cross: All account balances shared as margin, losses may affect all positions. | Before opening |
Limit/Market Order | Limit: Placed at a specified price, not executed immediately. Market: Executed immediately at the best available price. | Before opening |
Take-Profit/Stop-Loss | Take-Profit order: Closes position automatically when profit target is hit. Stop-Loss order: Limits losses automatically. | Before opening / During |
Realized/Unrealized PnL | Realized PnL: Profit/loss from closed positions and fees. Unrealized PnL: Estimated profit/loss based on current market price. | During |
Close/Forced Liquidation | Close: Closing a position with an opposite order. Forced Liquidation: Triggered when margin falls below maintenance level and mark price reaches liquidation price. | During / After closing |
Before Opening a Position
USDT-M (Perpetual) Futures: These are linear futures denominated and settled in USDT. The contract value is directly calculated in USD, making profit and loss straightforward and transparent. Traders do not need to hold BTC or other cryptocurrencies, which reduces exposure to coin price volatility and makes it suitable for beginners.
Example (BTCUSDT): Holding 1 BTCUSDT futures contract → if BTC rises by $1,000 → profit of 1,000 USDT (if BTC falls, equivalent loss). Margin and PnL are all settled in USDT.
Mark Price / Index Price / Last Price:
- Index Price: A weighted average of multiple exchanges’ prices to balance market differences. Regular users don’t need to focus too much on this.
- Last Price: The real-time trading price in the market, the price at which users actually transact.
- Mark Price: The “fair value” of the futures contract, used to calculate unrealized PnL and determine liquidation, preventing wrongful liquidations caused by short-term volatility.
Why are they important?
• Prevents wrongful liquidations: Even if the last price fluctuates violently, liquidation won’t occur unless the mark price reaches the liquidation price.
• Fair settlement: Unrealized PnL is calculated based on the mark price, producing more accurate results.
Order Book: Shows the user’s pending order prices and quantities. This is not a trade history but an order record. If you opened but not yet executed an order, you can see it here.
Isolated Margin Mode: Long and short positions are calculated independently. A certain amount of margin is allocated to each position. If the margin falls below maintenance level, the position is forcibly liquidated. The maximum loss = that position’s margin. Margin can be added or removed for that specific position.
Cross Margin Mode: All positions under the same margin asset share the account balance as collateral. If liquidation occurs, the trader may lose all funds in that asset and related positions.
Leverage: High leverage amplifies both profits and losses. The higher the leverage, the higher the liquidation risk.
Order Types:
- Limit Order: Placed at a specified price, not executed immediately. For buys: executed when trade price ≤ limit; for sells: executed when trade price ≥ limit.
- Market Order: Executed immediately at the best available price. Unfilled portions remain at market.
- Trigger Order (Planned Order): Once the trigger price is reached, an order with preset parameters is placed. Assets are not frozen before triggering. Execution is not guaranteed if conditions are not met.
Other Order Modes:
- GTC (Good Till Cancel): Remains valid until canceled.
- FOK (Fill or Kill): Must be fully filled immediately; otherwise canceled.
- IOC (Immediate or Cancel): Executes immediately; any unfilled portion is canceled.
→ These basic concepts are essential knowledge before opening a position. In particular, mark price, last price, cross/isolated margin, leverage, and limit/market orders are must-learns before creating a futures order.
During a Position
Margin: Margin = Position Value ÷ Leverage. Margin is the most critical concept in futures trading. At different stages, margin takes on different forms. Below are some of the most common types of margin:
- Maintenance Margin: The minimum margin required to keep the position open. = Position value × maintenance margin rate under current risk limit
- Position Margin: Initial margin + closing fee
- Order Margin: Total margin reserved for all open pending orders
- Initial Margin: Margin required to open a new position
Risk Ratio: A measure of account risk. At 100%, partial liquidation or forced liquidation occurs.
Account Concepts:
- Account Balance = Total deposits – total withdrawals + realized PnL + funding fees – trading fees
- Account Equity = Account Balance + total unrealized PnL
- Available Balance = Equity – order margin – position margin, etc.
Profit and Loss:
- Realized PnL: Profit/loss from closed positions and fees, not yet fully reflected in account balance
- Unrealized PnL: Estimated PnL based on current market price (excluding fees and funding)
ROI (Return on Investment): A performance metric measuring income relative to cost, used to evaluate investment efficiency and profitability.
After Closing a Position
- Closing: Exiting a position by taking the opposite order direction
- Trading Fees: Costs paid for executed trades
- Realized PnL: Final profit or loss after all fees
- Auto-Deleveraging (ADL): A mechanism where, under extreme conditions, counterparties are forcibly liquidated to control platform-wide risk
- Forced Liquidation: When margin falls below maintenance level, Coinstore forcibly closes the position at market price
Conclusion
Futures trading is complex and carries high risk. Traders should thoroughly understand how each part of the process works. By studying this guide, you will gain deeper insight into futures trading and be better equipped to make prudent and efficient trading decisions.
Disclaimer: This information does not provide advice on investment, taxation, legal, financial, accounting, consultancy, or any other related services, nor is it advice to purchase, sell, or hold any assets. The Coinstore Learn provides information for reference purposes only and does not constitute any investment advice. Please ensure a thorough understanding of the risks involved and invest cautiously. All user investment activities are unrelated to this platform.