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What’s finance? It’s an economic activity that uses currency as its business purpose and realizes currency appreciation through currency financing and other methods. The main forms of finance include indirect investment which is center on banks and direct investment which is center on investment banks.

Financial derivatives mainly refer to derivatives related to finance, which is ”financial contracts.” The value of derivatives depends on one or more underlying assets or indexes. In the financial derivatives market, margin trading is a common feature of financial contracts. In other words, as long as you pays a certain percentage of the margin, you can conduct a full transaction without the transfer of the principal. In general, financial derivatives have the advantages of avoiding risk, and hedging asset risk.

What is cryptocurrency contract trading?

In contract transactions, you can use leverage can amplify the tradable amount. Leverage multiples and account modes are usually set on the contract trading page of the cryptocurrency trading platform. You can use leverage to obtain greater returns, but trading risks are also increased. Therefore, you need to deposit a certain percentage of funds into the contract account on the trading platform as a guarantee, which is the “margin" when using leverage. According to the character of the margin, the contract types can be divided into COIN-M Futures and USD-M Futures.

COIN-M Futures use underlying currencies, such as BTC, ETH, etc., as margin; while USD-M Futures usually use USDT (US dollar against stable currency) as margin. Take the BTC perpetual futures contract as an example. If you choose to use COIN-M Futures, the margin for opening a position is BTC, the denomination currency is USDT, and the settlement currency is BTC. If you choose to use USD-M Futures, the margin for opening a position is USDT, the denomination currency is USDT, and the settlement currency is still USDT.

Due to the volatility of BTC is high, the volatility of USDT as a stable currency is low. Therefore, USD-M Futures is more convenient, stable, and its profits are relatively more volatile. For beginner, USD-M Futures is more safe. 

In specific contract transactions, according to the different scope of margin application, there are two types of margin modes, which are called "Cross Margin" and "Isolated Margin.”

In cross margin mode, all assets in the contract account will be converted into margin. However, once a forced liquidation occurs, all assets in the contract account will be lost. In isolated margin mode, the maximum loss of a contract position is the margin used by the position and the possible margin call for the position. Assuming that a forced liquidation occurs due to price fluctuations, only the margin of the position will suffer losses, and the margin of other positions in the account will not be affected.

These two margin models respectively respond to different risk management needs, and you should choose according to your actual trading conditions and comprehensive judgments on the market.