Beginner's Guide to Futures Trading: Explaining Complex Terms Clearly

Friends who are new to Futures are often confused by all kinds of terms—perpetual contracts, funding rate, forced liquidation… these words sound intimidating. In fact, once you get these concepts straight, trading becomes much simpler.

What You’ll See When Watching the Market

Perpetual contracts are contracts with no expiration date. As long as you’re not forcibly liquidated, your position can stay open indefinitely. Unlike traditional futures, there’s no fixed settlement date.

Funding rate is a fee paid between long and short positions. When the market goes up, there are usually more longs, so they pay shorts, and vice versa. If the funding rate is positive or negative, it can help you gauge market sentiment.

Things You Need to Know Before Placing an Order

Take Profit / Stop Loss (TP/SL) are the most useful—set your target and stop loss prices, and your position will close automatically when reached, so you don’t have to monitor the market constantly.

Limit orders vs. Market orders: Limit lets you set a specific price and wait for it to fill—it might not get filled. Market fills immediately at the best available price but may experience slippage.

Leverage modes come in two types:

• Isolated: Each position has its own margin, if one gets liquidated, you only lose that portion.
• Cross: All positions share the same margin pool. If any position is liquidated, it could affect your other positions.

Understanding Risk Is Very Important

Forced liquidation happens when your margin is insufficient to maintain your position. The system uses the mark price (a weighted average from multiple major exchanges) to determine whether to liquidate your position.

PNL comes in two forms: unrealized PNL (paper profit/loss while your position is still open) and realized PNL (actual profit/loss after closing).

Beginners should start with demo trading to practice. Get familiar with the interface and mechanics before trading with real money. Futures are high-risk, but understanding the basics can greatly reduce liquidation risk.

Tip: Don’t blindly follow high leverage—3x or below is relatively safe. Be extra cautious when the funding rate is high, as that signals excessive market sentiment.