Why do some people say that trading contracts with cryptocurrencies is not advisable?
I've seen many answers, but is it true that your contracts only have options for 100x and 125x, which can easily lead to liquidation?
How large is the liquidation spike? In fact, high-leverage contracts are purely gambling. Of course, if you're playing with a few hundred dollars, it's not a big deal. But if you go all in with high leverage, that's purely a self-destructive behavior. To put it simply, contracts are meant to increase your capital utilization.
The cost of perpetual contracts is funding fees, while the cost of spot contracts is the premium. Of course, this cost can be zero or even negative. I won't elaborate on that here. Many people do not have their own trading system and have a low risk tolerance. They lack strict trading rules and prefer to hold positions. Therefore, they might think that losing 30% in spot trading is not a problem for them, while a threefold contract could wipe them out. This is completely wrong.
First of all, being able to tolerate a 30% loss indicates that you do not have strict trading discipline and are purely gambling in the market. You might claim to be a long-term investor, but long-term trading should not involve contracts because there are costs and increased risks.
If you have a strict stop-loss, being able to tolerate the loss from a wrong position is your reason for trading contracts. For example, if you have 100,000, and the current price of BTC is 100,500, you believe 100,000 is an important support level that won't break. If it breaks, you will stop-loss. The loss you can tolerate is 10,000, and you are willing to take that risk. You can consider using 20x leverage, as this keeps your losses within your tolerance. However, if you do not have a stop-loss, when it drops to 95,000, you will have been liquidated and lost everything. So do you understand? When trading contracts, you must know what your maximum loss is and ensure it is within your tolerance. Alternatively, if you aim to increase capital utilization during a known bull market where all cryptocurrencies are rising and large corrections are unlikely.
In that case, to enhance capital utilization, it is reasonable to use leverage greater than 3x to allocate to different cryptocurrencies. Personally, I believe that contracts should not exceed 2x leverage; anything beyond that is purely gambling!!
