How to Use Futures Contract?
In futures trading, you can participate in market movements and make a profit by going long or short on a futures contract. By going long, a trader buys a futures contract with the expectation that it will rise in value in the future. Conversely, a trader sells a futures contract to go short, to bet on prices to decline in the future. On our LYOTRADE Futures platform, you can go long or short with leverage to reduce risk or seek profits in volatile markets. Follow these steps to start trading on our LYOTRADE Futures platform:
- 1.Deposit USDT into your USDⓈ-M Futures account
- 2.Select the level of leverage to your preference
- 3.Choose the appropriate order type (buy or sell)
- 4.Indicate the number of contracts you wish to own
Here’s an example of how you can profit by going long or short on a futures contract:
Going long on BTC/USDT:
Going short on BTC/USDT:
In spot markets, traders can only profit when the value of an asset increases. In contrast, through futures contracts, you can profit in both ways as the value of an asset rises or falls.
- Users choose Mark price as price basis:
Unrealized PNL = position size * direction of order * (mark price - entry price)
ROE% =Unrealized PNL in USDT / entry margin = ( ( mark Price - entry Price ) * direction of order * size ) / （position_amount * contract_multiplier * mark_price* IMR）
*IMR = 1/Leverage
- Users choose latest price as price basis:
Unrealized PNL = position size * direction of order * (latest price - entry price)
ROE% = Unrealized PNL in USDT / entry margin = ( ( latest price - entry Price ) * direction of order * size ) / （position_amount * contract_multiplier * mark_price* IMR）
Direction of order: 1 for long order；-1 for short order
To start trading on LYOTRADE Futures, you need to transfer funds from your Fiat and Spot Wallet to your Futures Wallet first.
To transfer funds to the Futures Wallet, please ensure that you are on the Futures trading interface.
Please take the following steps:
- 1.On the Futures trading interface, scroll down to locate the [Assets] widget on the bottom-right of your screen. Next, click [Transfer].
- 2.Select the type of assets you want to transfer into your Futures account. LYOTRADE Futures supports a wide range of crypto assets as collateral. You may deposit assets such as USDT or supported cryptocurrencies (i.e Bitcoin and Ethereum). Enter the amount and click [Confirm].
- 3.Once your assets are successfully transferred to your Futures Wallet, you can check the available balance under [Assets].
- 4.If you want to transfer the available amount in your Futures account to your Fiat and Spot Wallet, click on the [Swap] icon to change the transfer destination. Enter the amount you wish to transfer out and click [Confirm].
You can check your wallet balance in two sections on the futures trading interface. The first section is on the Order Entry Panel (labeled point 1 as shown on the screenshot below). The second section is on the [Assets] widget, located on the bottom-right of your trading interface.
- 1.On the [Assets] widget, you can view the balances of different assets in your Futures Wallet. For USDⓈ-M Futures, you will be able to view balances in USDT
- 2.Alternatively, you may click on [Wallet] to check your Futures Wallet balance.
- 3.Margin balance factors in unrealized P&L, and as such, the margin balance will fluctuate in real-time if there are open positions.
- 4.To view the balance of each asset, click on the [Assets] tab.
- Margin Balance = Wallet Balance + Unrealized P&L. (Your positions will be liquidated once Margin Balance <= Maintenance Margin.)
- Wallet Balance = Total Net Transfer + Total Realized Profit + Total Net Funding Fee - Total Commission.
- Unrealized profit and loss on your positions are calculated based on Mark Price.
- Available for Order (i.e. Available margin for opening a position):
- For USDⓈ-M Futures: Available for Order = max(0, crossWalletBalance + ∑cross Unrealized P&L - (∑cross initial margin + ∑isolated open order initial margin)
- Isolated open order initial margin = abs(isolated present notional) * IMR - abs(size) * IMR * mark price
- Isolated open order initial margin = abs(isolated present notional) * IMR - abs(size) * contract Size * IMR / mark price
- Balance (i.e. Wallet Balance): Wallet Balance = Total Net Transfer + Total Realized Profit + Total Net Funding Fee - Total Commission
Go to the Futures trading interface and click on the futures contract symbol to open the search box.
- 1.There are 2 types of futures contracts: USDⓈ-Margined Futures and Coin-Margined Futures. Select your preferred futures contract. For example, if you want to trade BTCUSDT perpetual contracts, click [USDⓈ-M].
- 2.Select the contract symbol you want to trade. You may rank all listed symbols based on volume or 24-hour price change.
- 3.Alternatively, you can search for a specific crypto futures contract using the search bar. For instance, if you search for “XRP”, all XRP contracts (Quarterly or Perpetual) will be displayed in the dropdown menu.
You may use the LYOTRADE Futures Calculator to calculate the initial margin, profit & loss (PnL), return on equity (ROE), and liquidation price before placing any orders.
- 1.Click on the [Calculator] icon located on the Order Entry Panel (right-side of the futures trading interface).
- 2.You can choose [PNL], [Target Price], [Liquidation Price], [Max Open], or [Open Price].
- 3.Select [Long] or [Short]. Next, enter the entry price, exit price, and quantity of your order. You can choose the leverage level by moving your cursor along the slider bar.
- 4.Click [Calculate]. The result for the initial margin, PnL, and ROE will be displayed on the right.
Notes for calculating P&L, initial margin, and ROE:
- Initial Margin = Quantity * Entry Price * IMR
- IMR = 1 / leverage
- Long = (Exit Price - Entry Price) * Quantity
- Short = (Entry Price - Exit Price) * Quantity
- ROE% = PnL / Initial Margin = side * (1 - entry price / exit price) / IMR
- Target price:
- Long target price = entry price * ( ROE% / leverage + 1 )
- Short target price = entry price * ( 1 - ROE% / leverage )
LYOTRADE supports high leveraged transactions through the use of complex risk control engines and settlement models. By default, leverage is set to 20x. You may adjust the leverage to your preference. The higher the leverage, the lower value of the trader's position.
- 1.To adjust your leverage, click on the [20x] icon on your futures trading interface.
- 2.Next, you will see the Adjust Leverage pop-up screen. Please note that if you do not adjust any leverage before placing an order, the system's default leverage will be 20x.
- 3.You can adjust the leverage multiple by moving the indicator or clicking the [+] or [-] icon. After adjusting the leverage, click [Confirm].
- 4.After successfully adjusting the leverage, you will see the new leverage.
Please ensure that the leverage you select is correct before placing an order.
- 1.Go to the Futures trading interface and click [Cross] on the top-right corner of your screen.
- 2.A confirmation screen will appear. Please select the margin mode of your choice. Then, click [Confirm].
- 1.You can repeat the steps above to switch between [Cross Margin] and [Isolated Margin] modes. Please be ensured that you have selected the margin mode of your choice before opening any orders or entering any positions.
- All contracts and positions are default to [Cross Margin] mode;
- Switching the margin mode will only apply to the selected contract;
- Please ensure that you have enabled the margin mode of your choice before entering any contracts or opening any positions;
- You are not allowed to change the margin mode if you have any open orders or positions;
- In Cross Margin Mode, the margin can only be shared with the same type of asset.
In the Isolated margin mode, you can adjust the margin balance allocated to your position in the [Positions] tab. Click the [Edit] icon to adjust the margin balance.
Enter the amount you would like to add or remove. Then, click [Confirm].
Calculations for maximum addable/removable margin in Cross and Isolated margin modes.
Cross Margin Mode:
The following calculations are the maximum withdrawal amount in Cross Margin Mode. The two formulas apply when your wallet balance has no gift money or has not used cross collateral:
- Cross Wallet Balance - ∑isolated open order initial margin - cross Position Maintenance Margin
For wallets with unrealized profits or losses, the maximum withdrawal amount must not exceed the following formula:
- Cross Wallet Balance + ∑cross Unrealized PNL - ∑cross initial margin - ∑isolated open order initial margin
Isolated Margin Mode:
The following are calculations for maximum addable and maximum removable margin:
When you trade in the futures market, sometimes the order fails to be placed or is not filled. Here are some possible reasons.
Reasons for place order failure:
- 1.Your margin balance is insufficient: There are other open orders using the margin or the order amount exceeds the position amount, and you need extra margin to open the position. The lower the leverage, the higher the required margin balance is. Altering the leverage could solve the insufficient balance issue.
- 2.Limited position: For stop-limit orders, the margin balance of the net position is not enough due to the exceeded amount of reverse position. Different maximum notional size the trader can open depends on diverse leverage.
- 3.Your order did not meet the minimum contract quantity: There are specific minimum contact quantities in a contract.
- 4.It was an [Reduce-only] order: The user cannot place the reduce-only order if there is no reverse position.
Reasons for unfilled orders:
- 1.No matching price on the market: The market price does not meet your set price. In a Stop-limit order, when the market price hits the trigger price, the order will be added to the market depth pool. When it hits the set price, the order will be filled. In Stop Market orders, the trigger price could be set at the market price or the latest price based on various demands.
- 2.Deviating hugely from the market price: No matching orders in the market depth pool at the set price. Should the position be very large, it could be partially filled.
- 3.You did not pass the Margin check (for Stop Limit and Stop Market orders): For Stop Limit and Stop Market orders, you need to fill in trigger price and filled price (In Stop Market orders, the trigger price could be set at the market price or latest price based on concrete requests). The system will then execute double margin checks before placing an order and before filling the order. Once the order is triggered, the second margin check will be conducted instantly. In this case, if there is any loss or some margin balance has been transferred out from the futures account, resulting in an inadequate margin balance, the order status will be shown as expired.
Return on Investment (ROI) is a ratio or percentage value that reflects the profitability or efficiency of a certain trade or investment. It is a simple-to-use tool that can generate an absolute ratio (e.g.0.35) or a value in percentage (e.g.35%). As such, ROI can also be used when comparing different types of investments or multiple trading operations. Specifically, ROI evaluates the return on an investment in relation to its purchasing cost. This means that the calculation of ROI is simply the return (net profit) divided by the total acquisition costs (net cost). The result may then be multiplied by 100 to get the percentage value.
Naturally, a high ROI value indicates that the investment was profitable, while a negative ROI means the return was lower than the costs. The calculation of ROI is based on the following equation:
ROI = (Current Value - Total Cost) / Total Cost
Alternatively, it may also be written as:
ROI = Net Profit / Net Cost
As an example, imagine that Alice bought 100 LYO for 1,000 US dollars - paying 10 dollars each. If the current price of LYO is 19 dollars, Alice would have an ROI of 0.90 or 90%.
ROI is widely used in both traditional and cryptocurrency markets. However, it has some limitations. For instance, Alice may use the ROI formula when comparing two different trades. However, the equation does not take the time into account.
This means that in some situations, one investment may seem more profitable than the other when, in reality, its efficiency was lower because it required a much longer period. So, if Alice’s first trade had a 90% ROI but took 12 months to happen, it would be less efficient than a second trade that had, for example, a 70% ROI in 6 months.
ROI is a way to measure an investment's performance. Additionally, it's also a great way to compare the profitability of different investments. Naturally, an investment with a higher ROI is better than an investment with a lower (or negative) ROI.
In our continuous efforts to improve your trading experience, we added two new features that will help you better manage your positions. The first additional feature is the profit and loss calculations based on the last price. Now, users can track profit and loss calculations of open positions based on the contract’s last price. This allows them to manage their trades better based on the prevailing market conditions. The second feature is the Close-All Positions function which allows traders to efficiently exit all positions simultaneously in the event of extreme market conditions. With this new feature, users need not exit multiple positions manually. Instead, simply click on the [Close All] button to exit.
On the futures trading interface, scroll down to the Orders and Positions management panel. Click on [PNL (ROE %)] and select your preferred price basis (Mark price or Last Price).In this scenario, we select the [Last Price] option to change P&L calculations based on the last price of the contract. After which, the PNL (ROE%) calculations for all open positions will be updated according to the selected benchmark.
- The Close-All positions function is enabled by default for all users. To check, click on the [Positions Preference] icon (shown in the screenshot above) and ensure that the [Close All Positions] option is checked. If the Close-All Positions function is enabled, a [Close All Positions] button will appear on the right of the [PNL(ROE%)] tab (refer to the screenshot below). Once enabled, you can use the Close-All function to exit all open positions simultaneously at market price. This feature will cancel all open orders and submit market orders to exit all positions immediately.
- After clicking [Close-All Position], you will see the following pop-up window.
- Click [Confirm] to proceed with closing all positions via a market order. If you do not wish to perform this operation, click [Cancel].
Futures exchanges have established various risk management mechanisms to protect highly leveraged traders from incurring significant losses. One of which is liquidation, a risk control feature that prevents traders from falling into negative equity.
In volatile markets, leveraged positions are prone to price gaps and may cause a trader’s equity to plunge into negative territory instantaneously. In these situations, losses can exceed the maintenance margin.
Here's an example of how it plays out in real life:
Consider two traders, Alice and Bob, both initiated opposing positions in BTC/USDT perpetual futures worth 1 BTC with 20x leverage. Both Alice and Bob have a wallet balance of 5,000 USDT each. Table 1 describes the details of their respective positions.
Table 1 - Position details of Alice and Bob
Let’s assume a 10% fall in BTC/USDT perpetual prices to $49,500. In this scenario, Alice incurs a loss of $5,500 in her long trade, while Bob profits $5,500 on his short trade. The consequent events are as follows:
- Alice depletes her margin and is subjected to liquidation.
- The price at which margin drops to zero is called the liquidation price. For Alice, $50,200 is the liquidation price.
- Instantaneously, the exchange liquidates Alice’s position at $50,200 to ensure that Alice does not fall into negative equity.
In a volatile market, it is extremely difficult to ensure that the losing positions are liquidated precisely at their liquidation price. Furthermore, liquidating beyond the bankruptcy price would mean that Bob receives fewer profits and Alice would incur more losses.
To prevent these occurrences, exchanges tend to liquidate the losing positions at a price better than the liquidation price.
In cases where an exchange is unable to liquidate positions before a trader reaches negative equity, the following methods will be used to cover the losses of bankrupt positions:
- Insurance Fund: A fund that is maintained by the exchange to ensure that profitable traders receive their profits in full and cover for any excess losses incurred by a bankrupt trader.
- Auto-deleverage liquidations (ADLs): In ADLs, the exchange selects opposing traders in order of leverage and profitability, from which positions are automatically liquidated to cover for the losing trader’s position.
You can access all information related to your trading activities in the Orders and Positions panel located at the bottom of your trading interface. In this area, you can switch between the tabs to check the current status of your positions and your currently open and previously executed orders.
In the [Positions] tab, you will be able to view all open positions including:
- Entry price, mark price, and the liquidation price
- Margin ratio and margin
- Realized/unrealized profit and loss.
This is also where you can monitor your positions in the auto-deleverage queue under ADL (important to pay attention to during periods of high volatility).
The order history is a record of your order placements of filled or unfilled orders in a given period. This section shows all order details including the time, symbol, quantity, price, and order type.
- Click on the [Order History] tab to view your previous orders in detail.
- Order History records the status and order details for all order placements, including all canceled limit and conditional orders.
The trade history represents the historical record of actual position transactions, only filled orders are shown in this section. Like the order history, this section shows all trade details including the time, symbol, quantity, price, and direction of a trade.
- Click on the [Trade History] tab to view all your trade history.
- Trade History records the transaction details of all your executed orders, trading fees, and realized profits.
Transaction History shows all activities (transfers, realized profit and loss, commissions, funding fee, and insurance fund payments) that have occurred in your futures account in a given period.
- Click on the [Transaction History] tab to view all activities in your futures account.
- Use the search bar to view a specific transaction activity. For instance, if you want to view all funding fee-related transactions. Click on the search bar and select [Funding Fee].
To avoid liquidation, you need to pay close attention to your Futures Margin Ratio. When your margin ratio reaches 100%, some, if not all, of your positions will be liquidated.
The margin ratio is calculated as maintenance margin divided by margin balance.
Therefore, if your margin balance drops below the maintenance margin rate - the exchange will liquidate your positions.
In case of a price drop, please ensure that you have enough margin balance in your futures account. The higher the margin balance you have, the lower the liquidation price.
You can use the LYOTRADE Futures Liquidation price calculator to calculate how increasing your wallet balance will lower the liquidation price.
A Stop-Loss order is a conditional order that is executed at a specified price after a given stop price has been reached. Once the stop price is reached, it will buy or sell at the market/limit price depending on your order parameters.
A stop-loss is designed to limit an investor's loss on a position that makes an unfavorable move. For instance, you set up a 20% stop loss from your entry price.
Assume your entry order was executed at $40,000. The stop-loss order will be triggered when the price drops -20% from $40,000.
By setting a stop-loss function, you can exit a losing position earlier and avoid getting liquidated.
Let’s consider this scenario. Assume you have a wallet balance of 500 USDT. You entered a long BTC USDT position worth 1,000 USDT with 20x leverage at $50,000. In this example, your liquidation price will be $25,100.40.
1. You may access your LYOTRADE account, including your Futures and Spot wallets and order history. You can simply monitor your wallet balances and orders across the whole LYOTRADE ecosystem.
2. In this area, you access contract-related information such as:
- The current contract’s name (BTC USDT by default). You may switch to other contracts by clicking on the current contract’s name. After which, a dropdown menu will appear to show all listed contracts.
- Check the Mark Price (an important metric, as liquidations happen based on the Mark Price).
- Check the expected Funding Rate and its countdown until the next funding round.
- Contract statistics, such as 24-hour volume or 24-hour price change.
3. This area displays a price chart of the chosen contract. You can switch to the integrated TradingView chart. On the right, you’ll get a real-time display of the order book data. You can adjust the accuracy of the order book in the dropdown menu on the top right corner of this area (0.01 by default).
4. This is your order entry panel. Place orders according to the various order types available on LYOTRADE Futures. For starters, you can select a buy-limit or buy-market order to purchase for your first crypto futures contract. This is also where you can switch between Cross Margin and Isolated Margin. Adjust your leverage by clicking on your current leverage level (20x by default).
5. This is where you can check your available assets, deposit, and buy more crypto. This is also where you can view information relating to the current contract and your positions. Be sure to keep an eye on the Margin Ratio to prevent liquidations.
By clicking on [Transfer], you can transfer funds between your Futures Wallet and the rest of the LYOTRADE ecosystem.