How to Start Trading Derivatives: A Step-by-Step Guide for Beginners

Trading derivatives is one of the ways to operate in the cryptocurrency market, allowing traders to profit from both rising and falling asset prices. Before starting derivative trading, it is important to understand the basic principles, types of instruments, and risk management.

Fundamentals of Derivative Trading: What You Need to Know

A derivative is a contract between two parties where key terms are agreed upon in advance: which asset is being traded, at what price, in what quantity, and when the contract expires. These instruments allow for leverage (credit amplification), meaning you can control a larger amount of assets with a small initial deposit.

In practice, derivative trading is straightforward: if you expect the price of a cryptocurrency to rise, you open a long position (buy the contract). If you anticipate a decline, you open a short position (sell the contract). Profit depends on the accuracy of your forecast and the chosen leverage size.

Types of Contracts: Choosing the Right Instrument

When trading derivatives, you will need to choose between two main types of contracts:

Perpetual Contracts. These instruments have no expiration date—they are automatically extended. This is convenient for long-term strategies since you are not tied to a specific expiry date.

Futures Contracts. These contracts have a fixed term: current week, next week, month, or quarter. After the term expires, the position is automatically closed.

Margin Modes and Settlement Types

In derivative trading, it is important to understand in which currency profit and loss will be calculated. There are two options:

Crypto Margin Contracts (Reversible). These contracts use cryptocurrency for settlement—for example, BTC or ETH. The price is quoted in USD, but profit/loss is calculated in the base cryptocurrency. If you want to trade perpetual contracts with BTC margin, you need to have BTC in your account as collateral.

USDT Margin Contracts (Forward). In this case, all operations are conducted in the stablecoin USDT. This is more convenient for beginners, as there is no need to convert different cryptocurrencies—just hold USDT.

Choosing the Margin Mode: Cross or Isolated

Cross Margin. In this mode, the entire available account balance serves as collateral for open positions. This offers greater trading potential but also higher risk: if a position becomes unprofitable, you can lose the entire balance.

Isolated Margin. Here, collateral is locked separately for each position when placing the initial order. The maximum loss is limited to this amount, reducing the risk to the entire account.

Order Parameters: How to Properly Place an Order

To succeed in derivative trading, you need to correctly fill out several key fields:

Trade Direction. Choose whether to open a long position (bet on growth) or a short position (bet on decline).

Trading Leverage. This is credit amplification—higher leverage means higher potential profit but also increased risk. Beginners are recommended to use conservative leverage (1–5x).

Order Type. Choose between two options:

• Limit Order—you specify your desired price, and the trade executes when the market price reaches that level
• Market Order—the trade executes immediately at the best current market price

Position Size. You can specify an amount in contract units, in the token itself, or in USDT. Make sure your account has sufficient funds—if not, adjust leverage or top up your balance.

Risk Management in Derivative Trading

Derivative trading involves high risks. Each position can lead to profit or loss of all funds if the price moves sharply against you. Therefore, it is important to:

• Start with small volumes and low leverage
• Set stop-loss orders for automatic closure of losing positions
• Never risk more than you can afford to lose
• Constantly monitor market conditions and news

Cryptocurrency derivatives are subject to sharp price fluctuations. Before trading, carefully assess your financial capabilities and experience level. If in doubt, consult with an investment professional.