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# The basic terms of Futures Trading

## Underlying

The underlying asset (often referred to as the underlying): This is the ‘source’ of futures value. Underlying assets include stocks, bonds, commodities, interest rates, market indexes, and digital currencies.

## Funding Rates

Funding Rates are periodic payments to futures traders based on the difference between futures markets and spot prices. Therefore, traders will either pay or receive funding depending on their open positions. Funding rates can serve as a sentiment indicator of sorts. When it is positive, there is a high interest in long trades, whereas a negative funding rate shows that the short is quite crowded. LZ Futures provides minute-based funding rates compared to the 8-hour funding cycle of exchanges.

## Maker and Taker

Markets are made up of makers and takers. LZ Futures uses a maker-taker fee model to determine the trading fees. Orders that provide liquidity (‘maker orders’) are charged less than orders that are executed immediately, i.e. ‘take liquidity’.
• Maker: When you place an order that waits to be filled, such as a limit order, the order adds liquidity to the order book for that cryptocurrency.
• Taker: When you place an order and it is filled instantaneously, you will be charged fees as a Taker. This type of order takes away part of the existing liquidity in an order book for a security.

## Margin and Leverage

### Margin

Margin is the amount of capital traders are required to deposit into their margin account before opening a new position. With collaterals as proof of traders’ ability to honor their contract obligations, they can borrow capital from exchanges to undertake a new investment.
$Margin Ratio = Maintenance Margin / Margin Balance$
• Maintenance margin is the minimum amount of margin balance required to keep your open positions.
• The margin balance is equal to Wallet Balance plus Unrealized PNL. Your positions will be liquidated once Margin Ratio reaches 100%.

### Leverage

Leverage refers to the magnitude of increase in one’s trading position. LZ Futures allows you to trade with up to 200 times more than what would be available from your cash balance . Once the trade is closed, the profit or loss made over the total position is added or deducted from your cash balance, and the borrowed funds are returned to the exchange.
The amount of leverage is described as a ratio, such as 1:5 (5x), 1:10 (10x), or 1:20 (20x). It shows how many times your initial capital is multiplied.
Example: If you want to open a position worth $1,000 and only have$100 at hand, simply choose the 10X leverage level.

## Liquidation

Liquidation is the forced closing of a trader’s position due to the partial or total loss of the trader’s initial margin. You will get a margin call before your account is liquidated, which asks you to deposit more capital into your margin account until the balance reaches the initial margin requirement.. Otherwise, the position will be closed.
The severity of this loss will depend on the initial margin in place and how much the price drops. In some cases, it can lead to a total investment loss.