Core Concepts

Perpetual Contract (Perps)

A derivative contract that allows traders to speculate on an asset's price without an expiration date. Unlike traditional futures, perpetuals can be held indefinitely.

Example: You can hold a long BTC perpetual position for months without worrying about contract expiry or rollover.

Long Position

Buying a contract with the expectation that the price will rise. You profit when the price goes up and lose when it goes down.

Example: Long SOL at $100, sell at $120 = $20 profit per contract.

Short Position

Selling a contract with the expectation that the price will fall. You profit when the price goes down and lose when it goes up.

Example: Short ETH at $2000, buy back at $1800 = $200 profit per contract.

Leverage & Margin

Leverage

The ability to control a larger position with less capital. Expressed as a multiplier (e.g., 10x, 20x, 50x).

Example: With $1,000 and 10x leverage, you control a $10,000 position. A 1% price move equals a 10% profit or loss on your capital.

Initial Margin

The collateral required to open a leveraged position. Calculated as position size divided by leverage.

Example: $10,000 position with 20x leverage requires $500 initial margin (10,000 / 20 = 500).

Maintenance Margin

The minimum equity required to keep a position open. If your equity falls below this level, you'll be liquidated.

Liquidation

The automatic closing of your position by the exchange when losses approach your initial margin. This prevents negative account balances.

Example: Long BTC at $40,000 with 10x leverage. If BTC drops 10% to $36,000, your entire margin is wiped out and the position is liquidated.

Liquidation Price

The specific price at which your position will be automatically closed. Monitor this carefully to avoid unexpected liquidations.

Pricing & Funding

Mark Price

A calculated "fair" price based on spot market prices and a funding rate basis. Used to prevent liquidations due to manipulation.

Index Price

The average spot price from multiple exchanges, used as a reference for the mark price calculation.

Funding Rate

A periodic payment between longs and shorts (typically every 8 hours) that keeps the perpetual price close to the spot price.

Example: Funding rate is +0.01% means longs pay shorts 0.01% of position value every 8 hours. This incentivizes traders to take the opposite side, balancing the market.

Positive Funding

When perpetual price > spot price, indicating more demand for longs. Long positions pay shorts.

Negative Funding

When perpetual price < spot price, indicating more demand for shorts. Short positions pay longs.

Order Types

Market Order

An order that executes immediately at the best available price. Guarantees execution but not price.

Limit Order

An order that only executes at a specified price or better. Guarantees price but not execution.

Stop Loss

An order that automatically closes your position when price reaches a specified level, limiting potential losses.

Take Profit

An order that automatically closes your position when price reaches a profit target.

Performance Metrics

PnL (Profit and Loss)

The total profit or loss from your trading activity. Can be realized (closed positions) or unrealized (open positions).

ROI (Return on Investment)

Your profit as a percentage of your invested capital. Calculated as (PnL / Initial Capital) × 100.

Win Rate

The percentage of your trades that are profitable. (Winning Trades / Total Trades) × 100.

Example: 60 winning trades out of 100 total = 60% win rate.

Sharpe Ratio

A measure of risk-adjusted returns. Higher values indicate better returns relative to the risk taken.

Maximum Drawdown

The largest peak-to-trough decline in your account value. Measures worst-case losses during a trading period.

Next Steps

Now that you've mastered the terminology, continue your learning: