As companion series of Blockchain 101, Contract Trading 101 is the beginners guide to understand contract trading-- a practical tool for hedge, arbitrage and speculation.
In the digital assets contract trading, according to market price fluctuation, we can make profit by going long or selling short underlying objects.
Going long means that investors estimate market would rise so that they buy certain quantities of digital assets bullish contracts.
Take the BTC contract trading as an example, you bought a contract valued 1 BTC, when the price of 1BTC was 5000 USD, and then you sell it out when the price of 1 BTC increases to 5500 USD.Finally, you make 500 USD.
Conversely, selling short means investors estimate market would fall, therefore, they short certain quantities of digital assets bearish contracts.
Also take the BTC contract trading as an example,you shorted a contract valued 1 BTC when the price of 1 BTC was 5000 USD, by selling the 1 BTC for USD and then you buy-back a contract when the price of 1 BTC decreases to 4500 USD.This time, you still make 500 USD.
We can make profit only when commodities’ price goes up in spot transaction,
however, even if the price of underlying asset rise or fall,we can make profit by investing in contract trading through buying long or selling short.