The Complete Guide: How to Trade Futures and Perpetual Contracts

Trading futures and perpetual contracts opens opportunities for experienced traders to work with leverage and manage risks through various tools. If you’re just starting to understand how to trade futures, this guide will help you grasp the basic mechanisms, from opening a position to closing it. Successful contract trading requires understanding several key aspects: choosing the right order type, managing borrowed funds, and continuously monitoring your position.

Basics of Opening a Position in Contract Trading Pairs

When you begin trading futures, the first step is selecting a method to open a position. Modern exchanges provide two main order placement systems. The first is quick trading via the chart, allowing you to instantly place limit or market orders directly from the price chart. The second is an advanced order panel where you can configure all parameters according to your trading strategy.

During order preparation, it’s important to fill out several critical parameters sequentially. Start by choosing the margin mode (cross margin or isolated margin), position mode (one-way or hedge), and leverage size. By default, the system uses cross margin with 10x leverage in one-way mode, but each of these parameters can be adjusted based on your experience and strategy.

Margin Modes, Positions, and Leverage in Futures Trading

Choosing the Margin Mode

The margin mode determines how collateral requirements are calculated. In cross margin, all your available funds can be used to support any position, providing greater flexibility. In isolated margin, each position has its own collateral pool, isolating risk but requiring active management of each position.

You can switch margin modes during trading if you have sufficient funds. This is one of the key advantages of modern platforms — adaptability to changing market conditions and your trading goals.

Position Modes: One-Way and Hedge

In one-way mode, you can hold a position only in one direction. If you have an open long position, any incoming sell order will first close the existing position and then open a new short position. This is the simplest mode for beginner traders.

Hedge mode is available for USDT contracts and allows you to hold long and short positions simultaneously on the same trading pair. This is useful for complex strategies requiring protection against opposite price movements. The interface shows separate tabs for opening and closing positions in each direction.

Important: In isolated margin mode, hedged positions are independent and liquidated separately. In cross margin, the system attempts to maintain the account’s margin ratio to protect the entire account, so hedged positions on the same pair are not liquidated simultaneously.

Leverage and Its Impact on Capital Requirements

Leverage size directly affects the initial and maintenance margin for your position. The higher the leverage, the less of your own capital is needed to open a position of a certain size, but the risk of liquidation increases. The maximum allowable leverage varies depending on your risk limit — a parameter set by the exchange based on your trader profile.

When you change leverage, the system recalculates the required margin size. Remember: lowering leverage is only possible if you have enough free funds, and increasing leverage only if it does not cause immediate liquidation.

Types of Orders for Futures Trading

Choosing the correct order type is critical for executing your strategy. A limit order executes at your specified price or better but does not guarantee execution. A market order executes immediately at the current market price. A conditional order triggers when a trigger price is reached and can be either limit or market.

Additional options include execution strategies with Time-In-Force: GTC (Good Till Canceled), IOC (Immediate Or Cancel), and FOK (Fill Or Kill). Each serves specific trading goals and requires understanding of market microstructure.

Price Calculation and Triggers for Conditional Orders

Different order types require different price parameters. For a limit order, you set a target price. For a conditional order, the trigger price is critical — the price at which the order activates. Here, confusion often arises between the last traded price (LTP) and the mark price.

The mark price is a global index reflecting the real spot price from major global exchanges, adjusted for funding rates. It’s used for unrealized P&L calculations and liquidation triggers. The last traded price can be manipulated on less liquid exchanges, so traders often prefer conditional orders based on the mark price.

Understanding the difference is important: if a conditional order has a trigger on the mark price, it may activate without the last traded price reaching the specified level. This can lead to unexpected order triggers if the trader doesn’t account for the mechanics of the mark price.

Determining Order Size and Capital Management

After choosing the order type, you need to specify its size. Exchanges allow you to specify size in several ways: by number of contracts, by value in USDT (including opening and closing fees), or by required margin considering the selected leverage.

The system automatically converts between formats, showing all options. This is convenient for planning your order based on your preferred calculation method — volume, capital expenditure, or margin risk.

Setting Target Profit and Stop-Loss for Protection

The TP/SL (Take-Profit/Stop-Loss) function allows automatic closing of a position when profit or loss targets are reached. This feature is set when placing an order to open a position, and the system will automatically place both orders after the main order is executed.

If the position is already open, you can modify TP/SL at any time via the positions tab. However, note that a stop-loss may not trigger if liquidation occurs before the SL level is reached. This happens when the position is forcibly closed due to insufficient margin, regardless of protective orders set.

Advanced Order Settings for Experienced Traders

Beyond basic parameters, modern platforms offer advanced options. The Post-Only option ensures that a limit order will not be executed as a taker (market order) but only add liquidity to the order book. This helps reduce trading fees.

The Reduce-Only option prevents opening new opposite positions, guaranteeing that the order will only close or partially close an existing position. In hedge mode, there’s an analogous option — Close-On-Trigger, which closes the position when a conditional order trigger activates.

Managing Margin of an Open Position

In isolated margin mode, after opening a position, you can adjust its parameters. You can add additional collateral to reduce the risk of liquidation or decrease margin if you want to free up funds.

Adding margin does not affect the leverage used when opening the position but recalculates the liquidation price. When adding funds to a position, keep in mind three scenarios:

Scenario of changing leverage: after adding margin, if you change leverage, the system recalculates the initial margin and cancels the added funds. Traders can only lower leverage if they have free funds or increase it if it doesn’t cause immediate liquidation.

Scenario of adding to a position: after adding margin, if you open an additional position in the same direction, the extra margin is distributed between both positions, recalculating the overall liquidation price. For example, adding $1000 margin to a 1 BTC position at $10,000 entry price lowers the liquidation price. Opening a second 1 BTC position shares that $1000, raising the liquidation price.

Scenario of closing part of a position: if you close part of the position, the added margin decreases proportionally to the closed amount. If you close 50%, the remaining added margin is halved. The liquidation price remains unchanged because margin is distributed evenly.

Monitoring the Mark Price in Contract Trading

The mark price is a key indicator for derivatives traders. It’s calculated as a global index of the spot price, adjusted for the current funding rate. It reflects the fair value of the contract and is used for unrealized P&L calculations and liquidation triggers.

On the chart, you can switch between the last trade price chart and the mark price chart for better understanding of fair value. The mark price is usually highlighted with a distinct color (often yellow) near the current price. On the mark price chart, it appears as a separate line showing its movement.

For more precise monitoring, the mark price can be filtered by your position’s direction via settings. This helps you see only relevant information and avoid confusion when managing multiple positions.

Cancel Active Orders

Until an order is executed, it can always be canceled. Go to the Current Orders tab in the positions table and click Cancel next to the desired order. If an order has been partially filled, only the remaining part is canceled.

Market orders cannot be canceled once placed, as they execute instantly. However, limit and conditional orders can remain active until canceled or triggered.

Methods to Close a Position

When you decide to close a futures position, you have several options. The simplest is clicking Close by Limit or Close by Market, which instantly places an opposite order of the required size.

Alternatively, you can manually place a new order. In one-way mode, simply open an order in the opposite direction with the same size. For example, if you have a long on 1 BTC, open a short on 1 BTC, and the position will close once the order executes. To ensure no new position opens, use the Reduce-Only option.

In hedge mode, go to the Close tab and select the position you want to liquidate. The system allows closing both positions independently, providing greater flexibility in managing opposite positions.

Partial closing is also possible. You can always close part of your position, leaving the rest open, to gradually lock in profits or adjust your strategy.

Practical Tips for Successful Futures Trading

Remember a few key rules when trading futures. First, start with low leverage — 2-5x is sufficient for beginners to learn. Second, always set a stop-loss, even if you’re confident in your analysis — liquidation can happen faster than expected.

Third, regularly check the mark price and your margin requirements. The position can approach liquidation unnoticed, especially in low-liquidity order books. Fourth, test new strategies on a demo account or with minimal sizes before scaling up.

Finally, remember that futures trading carries increased risk of capital loss due to leverage. It’s recommended to risk no more than 1-2% of your portfolio per trade and never borrow the full available leverage. Proper risk management is the foundation of long-term success in contract trading.