Definition: A long position is taken when a trader expects the price of the cryptocurrency to rise. It involves buying a futures contract with the intention of selling it at a higher price in the future.
Profit and Loss: Profits are realized if the market price increases, and losses occur if the price decreases.
Definition: A short position is established when a trader anticipates a decline in the cryptocurrency's price. It involves selling a futures contract with the intention of buying it back at a lower price in the future.
Profit and Loss: Profits are earned if the market price falls, while losses occur if the price rises.
Opening and Closing Positions:
Opening a Position: Initiating a long or short position by buying or selling a futures contract.
Closing a Position: Exiting a previously opened position by selling (for long positions) or buying (for short positions) the corresponding futures contract.
Unrealized and Realized P&L:
Unrealized Profit and Loss (P&L): The paper profit or loss on an open position, based on the current market price.
Realized Profit and Loss: The actual profit or loss incurred when a position is closed.
Definition: Determining the quantity of contracts to trade based on risk tolerance, account size, and market conditions.
Risk Management: Proper position sizing helps control the potential impact of losses on the trading account.
Increased Exposure: Leverage allows traders to control larger positions with a smaller amount of capital, amplifying both potential profits and losses.
Risk Consideration: Higher leverage increases risk, emphasizing the need for careful risk management.
Definition: The minimum amount of funds required to keep a position open. Falling below this level may trigger liquidation.
Margin Call: A notification to deposit more funds when the account balance approaches the maintenance margin.
Definition: Using futures contracts to offset the risk in an existing portfolio. For example, a crypto miner might hedge against price declines by taking a short position.
Risk Mitigation: Hedging helps protect against adverse price movements.