Coinnice Trading Class: Bitcoin Contract Trading

What is Contract Trading?

Contract trading is opposite to spot trading. Spot trading follows the traditional trading method, which is the principle of低买高卖, while合约交易is a standardized contract that promises to deliver a certain amount of subject matter at a specific time and place in the future. Bitcoin contract trading is usually a standardized contract based on the Bitcoin price index. Bitcoin contract trading provided by Bitcoin exchanges is usually traded in Bitcoin.

The emergence of Bitcoin

On November 1, 2008, a man who called himself Satoshi Nakamoto posted a research report on a cryptography discussion group. The report elaborated on his new concept of electronic currency. Satoshi Nakamoto said: "The most fundamental problem of traditional currency is "trust". The central bank must make people trust that it will not devalue the currency, but this has happened again and again in history. Banks are supposed to help us keep our money and circulate it in electronic form, but they lend it out, allowing wealth to float in rounds of credit bubbles. What's more attractive is that people only need to turn on their computers and run the Bitcoin software to participate in the creation of Bitcoin." Bitcoin was born in 2009.

This virtual currency in the form of encrypted code has become popular all over the world. In recent days, Bhagwan Chowdhry, a professor of finance at the University of California, Los Angeles, wrote in the Huffington Post that he has nominated Satoshi Nakamoto as a candidate for the 2016 Nobel Prize in Economics.

The emergence of Bitcoin contract trading

The first Bitcoin appeared in 2009. The value of Bitcoin increased from no one to over $1,200 per Bitcoin at its peak, with an increase of hundreds of thousands of times. The huge wealth effect attracted a large number of investors, and the price of Bitcoin was booming. The main investment method at this time was to buy coins and wait for appreciation, that is, spot trading. At the same time, the potential risk of Bitcoin being used for money laundering and raising funds for terrorist organizations or illegal activities also attracted the attention of governments. Bitcoin prices fluctuated greatly under the dual effects of wealth craze and regulatory risks, and could even rise or fall by 40-50% in a day. The spot trading method of simply buying and holding Bitcoin and waiting for appreciation is extremely risky, and the demand for shorting Bitcoin is increasing day by day. Bitcoin has its special value. Bitcoin is created in a mechanical way, through computer algorithms, which is a new and interesting way to create currency, which caters to the curiosity of some players. In addition, due to the uncertainty of the exchange rate between Bitcoin and credit currency, Bitcoin has the characteristics of an investment product. Based on the above factors, Bitcoin contract trading has gradually developed.

Domestic Bitcoin Contract Trading

In 2013, my country began to engage in Bitcoin investment and launched leveraged trading. However, Bitcoin futures are highly controversial in the domestic currency circle. The biggest difference from traditional currencies is that Bitcoin does not have a central issuing agency. It is completely decentralized, with no central server or custodian. Everything is based on participants. Therefore, the trading method of Bitcoin still mainly relies on various trading platforms.

At present, the domestic trading platforms are mainly OKCoin, Huobi, BTC-Q, Coinnice, etc. The trading volume of spot trading and contract trading is close, while the futures trading volume was still relatively small just one year ago. In October 2015, during this big market, the futures trading volume even exceeded the spot trading volume for a few days, which shows that the futures momentum is rapid.

Comparative analysis of contract trading and spot trading

Bitcoin experienced a surge of more than 100 times in 2013, but plummeted by more than 70% in 2014. Previously, the famous British financial magazine "Money Week" conducted an investment ranking in 2014 and Bitcoin ranked first, even ahead of crude oil.

So what is the difference between contract trading and spot trading in actual operations?

If user A invests 200,000 yuan to buy Bitcoin at a price of 2,000 yuan, and can buy 100 BTC in spot trading, then contract trading can open 100 positions (full position mode). According to 20 times leverage, only 5 BTC is required as margin, which is about 10,000 yuan. Then, when the price rises to 3,000 yuan, we take OKCoin as an example. The user's profit from spot trading and futures trading is equal to 100,000 yuan, but contract trading saves 190,000 yuan of funds for free use. In other words, only 10,000 yuan was used to achieve the investment and profit of 200,000 yuan in spot trading.

If the price drops from 2,000 yuan to 1,500 yuan, assuming that the contract transaction has a margin call and does not blow up, the loss is also 50,000 yuan. In order to prevent the blow up, user A invests 50,000 yuan in the full position mode, then user A has 150,000 yuan of funds to use, which is equivalent to using less funds to get the same price return. If 150,000 yuan is placed in P2P lending, it can generate more than 20,000 yuan in interest at most. It is conceivable that the profit advantage of contract trading brings everyone a profit return rate.

At present, contract transactions on most domestic trading platforms have delivery problems, which will result in losses caused by gaps caused by price fluctuations when re-opening positions. The emerging platform Coinnice has achieved rolling delivery and can be accumulated indefinitely. To a certain extent, it has solved the embarrassing situation faced in contract transactions.

The Future of Bitcoin Contract Trading

From the perspective of the positioning of physical currency, the five characteristics of means of payment, means of circulation, value scale, world currency and means of storage can all be achieved with the current positioning of Bitcoin. Bitcoin is based on the generation method of encryption algorithm, which replaces the central bank on the one hand and solves the trust problem on the other hand. Even compared with physical currency, Bitcoin is superior to traditional currency in some aspects because it has no entity, is not controlled by the government, has traceable online transactions, and can maintain a basically constant total amount. Bitcoin is a new challenge to the existing rules of traditional currency, and it changes the traditional financial transaction model through technological revolution.

At the end of 2012, the production of Bitcoin was halved, which is one of the basic factors for the recent surge in Bitcoin prices; another important factor is that people's confidence in paper money is gradually decreasing. Bitcoin has become more and more widely used on the Internet. Wikipedia, the world's second largest social networking site MySpace, and some electronic operators have begun to accept Bitcoin. There are also many legal markets that can accept Bitcoin. Bitcoin was originally a payment method recognized by both parties in online transactions. As its influence expands, its transaction scope in reality is also expanding. In the United States, 700,000 merchants support Bitcoin payments. This influence will also spread in a relatively short period of time.

As the influence of Bitcoin continues to expand, investors will of course continue to pour in, and some investors will inevitably choose an efficient investment method. The contract trading market has also gradually shifted from being relatively closed to being open to the outside world. This openness will accelerate the pace of investment as Bitcoin contract trading is launched and popularized.

Author: coinnice
Editor: Meng Dada