The core reason lies in the high-risk nature of contract trading, especially under high leverage, where risks are greatly magnified. This can be understood from the following aspects:
1. Leverage magnifies risk, making liquidation easy
Capital utilization ≠ no risk: The leverage of contracts (e.g., 100X, 125X) can amplify returns but will also greatly amplify losses. For instance, under 100X leverage, a 1% price fluctuation could wipe out the principal, and market 'spikes' (large price fluctuations in a short time) are common, potentially triggering liquidation in seconds, leaving no time to react.
Assuming you buy $10,000 worth of Bitcoin with 100X leverage, if the price drops by 1%, you will lose the entire $10,000 principal; however, in spot trading, a 1% drop only results in a loss of $100, representing a huge difference in risk.
2. Increased risk due to trading costs and mechanisms
Funding fees/premiums continually consume the principal: perpetual contracts collect 'funding fees' daily (paid between long and short positions, which can be positive or negative, but accumulate costs when held long-term). Delivery contracts have 'premiums' (the difference between contract price and spot price). The longer you hold, the higher the cost, equivalent to 'hidden losses.'
Undisciplined positions = suicide: Many people trade contracts without setting stop-losses, thinking 'it's fine if the spot drops by 30%', but under contract leverage, a 30% fluctuation could lead to the principal being wiped out (for example, with 3x leverage, a 33% drop leads to liquidation), and holding positions may force them to cut losses due to margin call pressure.
3. Most people lack a trading system and discipline
Treating contracts like gambling: Under high leverage, short-term market fluctuations are highly random. Many people go all in without understanding the rules; essentially, it is a bet on price movements rather than rational trading. For example, believing 'support levels won't break' leads to opening a full position long, and once it breaks, liquidation occurs without considering risk tolerance.
Long-term investing is not suitable for contracts: Long-term investments should ignore short-term fluctuations, but contracts have holding costs (funding fees, premiums), and if held long-term, the combination of price fluctuations and cost accumulation results in risks far exceeding those of spot trading, to the extent that one might 'make money while the market rises but still lose money.'
4. Prerequisites for reasonable contract trading
If you must trade contracts, you must meet the following criteria: clearly define the maximum loss range. For example, with a $100,000 principal, you can withstand a loss of $10,000, then calculate your position based on leverage (e.g., with 20X leverage, you can open a position of $5,000, and if it drops by 20%, you stop loss, resulting in a loss of exactly $1,000).
Low leverage + strict stop-loss: Leverage should not exceed 3 times, and every trade must have a stop-loss set; never hold positions without a stop-loss. Treat contracts as a tool to 'enhance capital utilization' (such as lightly trading long in a bull market), not as a 'get-rich-quick scheme' for gamblers.
Contracts are essentially tools for professional traders to hedge risks or optimize capital efficiency, but for ordinary players, high leverage, trading costs, and market volatility can turn it into a 'graveyard for gamblers.' Without a mature trading system, strict discipline, and risk tolerance, trading contracts, especially with high leverage, is almost equivalent to gambling with your principal; liquidation is just a matter of time.
Contract risk
The toxicity of contracts is worse than that of poisonous snakes; contracts are suitable only for a small number of professional investors who need substantial resources and energy to survive in the cryptocurrency world. Don't underestimate this; I have been invited countless times by exchanges to bring fans to their platforms for contract trading, offering me an 80% commission. Why so much? Because trading platforms want everyone to trade contracts.
Because you can lose money like crazy in contracts, while exchanges can make money like crazy.
I have summarized the reasons why most people are unsuitable for contract trading:
First, risk. In any investment, what we should first consider is not making money, but rather the risk. How to control risk within a reasonable range is the prerequisite for whether you can make money. The cryptocurrency market is a highly volatile and risky market. Prices are constantly fluctuating wildly. If we invest in spot trading, as long as we do not invest in trash coins, we can never lose everything. There is hope for recovery, but once we start trading contracts, regardless of the multiple, your risk is 100%. In an already high-risk market, using contracts amplifies that risk many times over. Do you think you can handle it?
Second, market manipulation is possible. Everyone who trades contracts thinks they are participating in a fair game, but it is not. For most people, simply participating means they have already lost. Most cryptocurrency traders keep their coins in exchange accounts; your coins are actually held by the exchange, which can use all your assets at will, similar to how we deposit money in a bank, which can then lend our money out.
What is the purpose of exchanges holding coins? They can use massive amounts of tokens to manipulate the market. Why do they manipulate the market? Because these tokens can be used to control market fluctuations, leading you, the contract trader, to experience liquidation. All your position data has already been statistically compiled and placed on the decision-makers' desks at the exchange; you are like a lamb waiting to be slaughtered. Many may have noticed that the market trends in the cryptocurrency world are very strange, often spiking in the middle of the night. A single spike can cause countless people to get liquidated, and this often happens at night when you are asleep, leaving you no time to add margin and forcing a liquidation. Therefore, for ordinary people, trading contracts is basically a dead end. Many might say they are doing well in contracts now, but that's only because they are not being targeted yet; once they are, you're done for.
Third, human nature. Speaking of human nature, we all know why gambling is addictive. Why do many people continue to gamble despite losing their families and relationships? It is due to human nature. The temptation of magnifying returns 100-fold is too great; turning $10,000 into $1,000,000 can elevate one's life to a new level. Because the temptation is strong, greed in human nature will lead people to push forward unconsciously. Losing doesn't matter; they always think they can recover next time. After recovering, they believe they can escape this perilous realm. But once they lose everything, they start borrowing, and when they can't borrow, they sell their homes and cars. The final outcome is likely liquidation. Many in the cryptocurrency world have taken extreme measures and chosen to jump from rooftops due to debts they believe they can never repay. Tragedies unfold this way.
Fourth, contracts are only suitable for professionals. Contract trading requires a lot of specialized knowledge and data. Many quantitative institutions in the cryptocurrency world are engaged in contract trading. They have big data and a group of the smartest individuals in the world, and they are more likely to collude with exchanges to exploit inexperienced traders. Thus, they can survive in the cryptocurrency world while most people are ordinary individuals, with their financial knowledge, resources, capabilities, and cash reserves being quite limited. We cannot access some resources that are available to the core players in the cryptocurrency world.
Therefore, trading contracts is basically a dead end. Even if I say so much, many people will still try their hand at contracts. However, it is essential to start with a small position; the key is not to be greedy. Once you decide to go big, you will be on a path of no return.
