Last week, we started from the very basics with a guide to buying DGTX tokens for newcomers. In the next post in this series, we’re going to walk through the next steps, covering the essentials of futures trading. And perhaps one of the most daunting parts for newcomers – deciphering all those numbers and charts on the Digitex trading interface.
With the launch of the Digitex Futures platform and the seamless integration of its first 70 traders, things are gearing up now as Digitex prepares to provide zero-commission trading to the masses of cryptocurrency enthusiasts across the planet. As trust in the traditional financial sectors continues to diminish, cryptocurrencies such as Bitcoin are becoming a favored path for investment amongst the general population.
With the halvening over and stimulus cheques flowing into Bitcoin, swings in the price of Bitcoin has been a dream for traders and none more so than the lucky few who have access to the Digitex platform at this moment in time.
Mark my words – the ease of entering and exiting positions using a single click ladder interface is going to set a new standard in this industry. Anyone who has traded on the platform thus far will attest to the value of this for reversing positions on the fly, turning your losing trades into instant winners.
As much as I would like to delve into the exceptional advantages this exchange offers its users – that comes later. For now, I’d like to present the Digitex Futures Exchange to new traders and outline what all the different numbers they see on the platform actually mean.
The Digitex Futures Exchange – Bitcoin Perpetual Futures
The first thing to understand is what you are actually trading. In this case, the product is Bitcoin Perpetual Futures contracts. You are essentially betting on the performance of Bitcoin (BTC) versus the U.S. Dollar (USD).
If you think BTC is going to rise in price versus USD then you can open a position of ‘LONG’ contracts. If you think BTC is going to drop in price versus USD then you can open a position of ‘SHORT’ contracts.
If you open a long contract and BTC goes up in price you can close your position for a profit. If you sell a short contract and BTC goes down in price you can close your contract for a profit.
However, if BTC goes the opposite direction to what you had bought, you can either close your contract and accept a loss or hold your contract and hope that the price comes back in your favor. If the price runs too far against you, your position can be liquidated, which is discussed in further detail below. When your position is liquidated, this means it is automatically closed for a loss by the exchange.
So you are not trading actual Bitcoins, you are trading contracts that represent the performance of BTC versus USD.
On the Digitex platform, the currency used to open these contracts is the DGTX token. All contracts are bought using the DGTX token and all winnings and losses are transacted using the DGTX token.
Below is a snip showing the Exchange in action. At first glance, there is a lot going on. So let me break it down into sections.
A – The Ladder
The ladder is where you open and close your trades. It is the order book and allows you to buy long or short contracts to speculate on the future price of Bitcoin.
The ladder is comprised of several key components.
- Spot Price: The spot price is the current trading price of BTC versus USD on the Digitex Exchange. The spot price is ever-changing and moves up and down the ladder depending on the BTC trading price at that instant in time. The spot price separates long contracts from short contracts. If you buy below the spot price, on the left (green) side of the ladder you are opening a long contract and are hoping that BTC will go up in value from there. Similarly, if you buy above the spot price, on the right (red) side of the ladder you are opening a short contract and are hoping that BTC will go down in value.
- Bitcoin Price Column: The Bitcoin Price Column is the vertical line of prices in white writing running from the bottom to the top of the ladder in $5 increments. Each of these $5 increments is called a ‘tick’.
- Entrance Price: Once you buy some contracts, the ladder will now show your entrance price. In the above image I have opened a short position at $8822.55 which is shown by the red line coming out from the ladder price. If I had opened a long at this price this would be green and not red.
- Profits: When you open a position, the ladder will display profits and losses along the side. This is great as it lets you know an estimate of how many DGTX you will make or lose if you close your contracts at this price. In the above example, you can see that the spot price is in the green, meaning, if I close my position, I will make an estimated profit of 23DGTX for that trade. This is a four-tick trade as the price of BTC has changed by four ticks from where I entered. Remember, a tick is each $5 increment of the BTC price.
- Orders: Orders from both yourself and other traders can be seen on the ladder. The rows of numbers beside each BTC price (in red and green) are orders placed by other traders who would like to either buy or sell contracts at those specific Bitcoin prices. In the above image you can see that there are two white numbers ‘25’ in the rightmost column of the ladder. These are my orders, specifically my short orders. To make these orders I simply click on the order book beside the BTC price – so I click where other people’s orders are and join the queue.
- Totals: What I call totals can be seen at the top of the ladder. In this image there are a total of 2384 long contracts and a total of 3395 short contracts currently placed on order in the ladder. 50 of these are mine. These numbers are important as they give you a feel for how much liquidity the ladder has while you’re trading. Essentially, it represents the total number of contracts people are trading at that moment in time and it tells you the balance of long and shorts currently on the exchange.
B – Your Trading Position Information
The box highlighted and annotated with the letter ‘B’ shows the position that your trading account is currently in. It has five important pieces of information:
- Bal: This is the total balance of DGTX tokens that you have in your trading account.
- ABal: This is the available balance of DGTX tokens that you can use to place more trades. If you have open trades, like I do in the above image, then your available balance will be less than your total balance by the number of DGTX you currently have open in trades.
- UPnL: This is your Unrealized Profit and Loss. This value will match the profit/loss value on the ladder at the location of the spot price when you have an open position. If you have no open position this will be blank.
- PnL: This is your Profit and Loss that has been realized after you have opened and closed a trade. Currently, this resets every 8 hours and it gives you a way to track your performance for your trading sessions.
- Open Contracts: The large number in the middle of them all is your total number of currently open contracts. If this is green, you have open longs. If this is red, like mine above, you have open shorts.
C – Leverage, Liquidation & Margin
At the top, annotated by the letter C, is where you adjust your leverage. If you don’t know what leverage is, you should research it before trading.
To understand leverage you must first know what liquidation and margin are. If you open a contract and the market moves in the opposite way than you had predicted, you risk liquidation. Liquidation is the event where the platform will close your open position at a certain agreed price. This price is based on your chosen leverage. The higher the leverage you trade with, the closer your liquidation price is to your opening position price.
When you increase your leverage, you are decreasing the amount of margin that each contract costs you to buy. Margin is your stake per contract and with no leverage applied it is equal to the contract value seen in box E. Margin is the amount of DGTX that is taken from your Available Balance when you open a contract on the ladder.
The equation for margin is easy, simply divide the contract value by the leverage you choose.
So, as you see from this, higher leverage reduces your margin for each contract. This allows you to trade more contracts with your trading balance, increasing your buying power.
Your Total Balance is 2000 DGTX. The Contract Value is 200 DGTX.
- At Leverage x1, you can buy 10 contracts total.
- At Leverage x10, you can buy 100 contracts total.
This sounds amazing but remember, the trade-off is a closer liquidation price and higher risk. Newcomers should proceed with caution and build up their use of leverage based on experience.
D – Contract Sizes
This section of the platform allows you to adjust your default contract sizes, simply click to cog symbol, and edit the contract sizes to suit your trading strategy and balance.
E – Background Mechanics and Funding
I’m not sure what this section is called but I call it the background mechanics. This shows you:
- Contract Value: As we described, this is the value of each contract. The contract value is dependent on the price of Bitcoin and is denominated in DGTX. It is the amount of DGTX that each contract is worth. You can convert this to USD by multiplying the contract value by the price of each DGTX token.
- Tick Value: The tick value is how many DGTX you make or lose for every tick (Remember a tick is a $5 movement of the spot price). This, multiplied by the amount of contracts you open, will be what dictates the Profit and Loss Numbers that you see beside the ladder when you open a long or short.
- Funding, Payout, In: When the ‘IN’ counter reaches zero, people with open long contracts will pay the percentage seen next to ‘Funding’ (0.01%) to those with open short contracts. So, if you are holding a long-term long position you must factor this into your strategy.
I hope this article has given a good breakdown of the Digitex Futures Exchange and what each of the different numbers means. The best way to learn and understand is to get onto the platform and start trading for yourself. It’s not as complicated as it looks! If you just want to practice, check out the testnet where you can trade with play tokens to get a hang of the platform.