Before answering this question, let me briefly explain. A perpetual contract, as the name suggests, is a contract with no expiration. In the current digital currency derivatives trading market, perpetual contracts are considered a relatively new type of contract. The meaning of perpetual contracts is that, under the premise of not being liquidated, if you do not actively close the position, you can hold this contract permanently. So how much leverage is reasonable when trading? Someone asked me yesterday.
This issue, let’s discuss it today.
Yesterday, I communicated with a fellow trader who usually uses 50x leverage or 30x leverage. For Bitcoin, 30x leverage requires 16U, 50x leverage requires 10U, and 100x requires 5U. Under the same market conditions, my personal suggestion is to only use 100x leverage. Why? Because once you use leverage in contract trading, whether it's 1x or 100x, you carry leverage risk. Under the same market conditions, the profits generated with 1x leverage and 100x leverage are vastly different.
Some people might say that the risk with 1x leverage is small, and that is true. Taking Bitcoin as an example, if you use 1x leverage, currently one contract requires more than 470U. Without a significant price increase, you are definitely losing, considering the costs of transaction fees. Moreover, even if there is a slight profit without a significant price increase, it won’t be much. What I want to express is that since you chose to trade with leveraged contracts, you should maximize the use of that leverage and only use 100x leverage.
In many cases, what is it like? Holding a thin amount of capital to trade contracts that do not match the current funding. With low margin, it cannot support the current market, and you might get pulled back and forth in a fluctuating market, leading to liquidation. Even when the market becomes profitable later, it has nothing to do with you. At that point, the contracts we hold have become invalid.
Therefore, when trading perpetual contracts, under permissible conditions, we should adequately prepare more margin for ourselves. Better safe than sorry. Regardless of what investment we make, there are risks involved. What we need to do is minimize those risks and then look at the profits. Holding onto losing positions is a big taboo in contract trading; timely cutting losses is very necessary.
Timely cutting losses, combined with a gradual position management approach, minimizes risks. Don't joke with your own principal. Set a daily target for yourself, and once you achieve it, take profits promptly. Contracts will become very simple.
Traders who have been in contract trading for a long time know that if you have 5000U as capital, making a daily profit of 50-100U is very simple. With some methods, it becomes even simpler. If you earn 50-100U a day, how much is that in a month? 1500--3000U! Of course, in actual operations, there might be large market fluctuations or various unexpected events. If we average it out, in a 30-day month, as long as you achieve your daily target for 20 days, you will still be in profit.
