**Understanding the Basics of Cryptocurrency Trading: From Spot to Derivatives**

Beginners often get confused by the terminology used on crypto exchanges. Let's clarify the key concepts necessary for successful trading.

**What are Spot and Contracts: Basic Division**

Spot trading is the simplest form of trading – you buy cryptocurrency at the current price and hold it, waiting for its value to increase. When the price rises, you sell and profit from the difference. It’s a straightforward strategy without debts or dependencies.

Contracts are a completely different instrument. They are derivatives that allow you to trade based on price movement forecasts without owning the actual coin. You can profit both from rising and falling asset prices.

**Leverage: Risk and Profit Move Together**

When trading contracts, you can use leverage – a multiplier that increases your position size. If you have 1000 U and use 10x leverage, you can trade a position worth 10,000 U.

Here lies a double effect: profits increase, but losses as well. With 10x leverage, your calculations look like this:
- Profit = principal amount × percentage increase × multiplier
- Loss = principal amount × percentage decrease × multiplier

**Long Positions: Betting on Growth**

When you believe the price will go up, you open a long position. The mechanism is simple: the exchange loans you money, you buy coins at the current price. If the price increases, you sell at a higher price, repay the loan, and keep the difference as profit.

Example: margin 10,000 U, leverage 10x. The exchange loans you 90,000 U, totaling 100,000 U for the purchase. If the price drops by 10%, the value of your position drops to 90,000 U. You lose the entire margin, but the exchange still holds the borrowed 90,000 U.

**Short Positions: Earning from Decline**

Short positions work the opposite way. You think the price will fall, so the exchange loans you coins, which you immediately sell. When the price drops, you buy the same amount cheaper and return it to the lender. Profit = initial proceeds minus buyback costs.

But if the market rises instead of falling, you’ll face problems. Consider: margin 10,000 U, 10x leverage on a coin worth 10,000 U. You borrow 9 coins (90,000 U value) and sell along with your 1 coin. If the price increases by 11%, each coin now costs 11,100 U. To buy back 9 coins, you need 99,900 U, but you only have 100,000 U from the sale. The account is insufficiently capitalized.

**Liquidation of a Long Position**

When a long position encounters a market decline and your account balance equals the margin, the position is automatically liquidated. The exchange takes the borrowed funds, your account resets to zero, and all capital is lost.

**Liquidation of a Short Position**

For short positions, liquidation happens the opposite way. When the price rises too quickly and you lack sufficient funds to buy back the borrowed coins at the new higher price, the exchange forcibly closes the position, buying the coins at the current high price. You lose all remaining capital.

**Bancryptuptcy: When Everything Goes Wrong**

This is the worst-case scenario. During sharp market fluctuations, the price can change so rapidly that the position cannot be closed in time. Not only is all your capital liquidated, but your account goes into negative – you owe money to the exchange.

**Closing a Position: Controlling Outcomes**

This is a manual action where you decide when to end the trade. You can lock in profits when the market moves in your favor or apply a stop-loss to limit losses during unfavorable movements.

Understanding these concepts is critically important. Spot trading is the safest option for beginners, while derivatives with significant leverage are tools for experienced traders who understand the nature of risk.