Should you really get involved in contract trading? This is the most common stumbling block for newcomers in the crypto space. Many people are eager to try, but end up jumping in without understanding the rules, only to be taught a harsh lesson by the market.

Instead of blindly following the trend, it’s better to thoroughly understand the underlying logic of contracts. Today, I will explain clearly in the simplest way what contracts are, how to trade them, and how to avoid liquidation.

**What exactly is contract trading?**

In one sentence: You don’t need to actually buy coins. As long as you judge the correct price direction, you can make money; otherwise, you lose money. Simply put, go long if you think prices will rise, go short if you think they will fall. The key is to capture price fluctuations, not to hold the assets themselves.

**Two main types of contracts**

Perpetual contracts have no expiration date, so you can hold them as long as you want. Their price is linked to the spot price through funding rates, with both longs and shorts paying each other.

Delivery contracts have fixed expiration dates, and are settled at the spot price upon expiry. Commonly, these include quarterly and bi-quarterly contracts.

**A few core concepts you must master**

The number of contracts (contracts size) is the minimum trading unit, and its value varies across different trading pairs. Leverage can amplify gains but also losses—10x leverage means a 10% drop could lead to liquidation.

There are two ways to open a position: buy to go long (bullish), sell to go short (bearish). Closing a position means ending the trade and locking in profit or loss, which can be done via market or limit orders. Forced liquidation occurs when margin is insufficient, and the system automatically closes your position to prevent your account from being wiped out.

**Risk control — the lifeline for beginners**

First: Keep leverage within 5x for safety. With 5x leverage, a 20% drop causes liquidation; with 10x leverage, a 10% drop leads to immediate liquidation. High leverage is like quick self-destruction.

Second: Limit stop-loss per trade to no more than 3% of your principal. For example, with 10,000 USD, lose no more than 300 USD per trade. Even if you make three wrong trades in a row, you still have 91% of your capital left to continue trading.

Third: Try to trade only mainstream coins like BTC and ETH. These coins have higher manipulation costs, more stable markets, and are less prone to sudden spikes. Small coins may seem exciting with their volatility, but in reality, they are a gamble with your life.

Fourth: Trade during the daytime, from 9 am to 6 pm. Around 3 am is when liquidation events are most concentrated. That time often features unpredictable volatility, so beginners should avoid trading then.

**Final words**

Contract trading can indeed make quick money, but whether you can profit steadily over the long term depends not on luck, but on your judgment of market direction, trading discipline, and risk management. First learn how not to lose money, then think about how to make big profits. Only those who trade steadily can go the furthest on this path. Never indulge in reckless, gambler-like trading.