Recently, many friends have been asking how to use leverage and what multiple is appropriate?
Today, I will answer this question: What is the essence and risk of contract leverage?
1. The core of leverage
Leverage amplifies the principal by borrowing funds (for example, with 10x leverage: 1 yuan of principal controls a position of 10 yuan, with profits and losses calculated based on 10 yuan).
Double-edged sword effect: profits and losses are amplified in proportion (1% price fluctuation → 10% profit and loss).
Liquidation risk: high leverage significantly reduces the margin for error, making it easy to trigger forced liquidation.
2. Misconceptions about choosing leverage
Beginners should avoid blindly using high leverage (like 50x/100x) and are advised to start with low leverage (5x-10x).
Core principles of position control
1. Total position management
Single risk ≤ total capital 1-5% (for example, in a 10,000 U account, the maximum loss is 100-500 U).
In extreme market conditions, positions should be reduced or liquidated in advance.
2. Dynamic adjustment strategy
Adding positions: pyramid-style adding positions after confirming the trend (for example, initial position 2%, subsequent 1%).
Reducing positions: take profit using an inverted pyramid strategy after making profits to prevent profit giving back.
3. Inverse relationship between leverage and position
High leverage (20x) → position ≤ 5%; low leverage (5x) → position can be up to 20%.
4. Key to stop-loss and take-profit
Stop-loss: set according to technical levels (support/volatility), refuse to hold losing positions.
Take-profit: staggered closing of positions (for example, taking profit at 50% position at resistance level, tracking stop-loss for the remainder).
Practical scenarios and survival rules
Case study (BTC/USDT perpetual contract)
Account: 10,000 U | Risk: 2% (200 U) | Leverage: 10x | Stop-loss: 1%.
Different market strategies:
Range market: low leverage (3-5x) + small position (5-10%), high sell low buy.
Trend market: moderate leverage (10-20x) + position 20-30%, follow the trend.
Extreme market: position ≤ 5% or avoid risk with no position.
Survival formula
Low leverage + small position + strict stop-loss + emotion control = long-term survival.
Key: protect the principal, market opportunities always exist, losses lead to exit and therefore end.
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