Many people say 'Don't trade contracts when speculating on cryptocurrencies,' the core reason being the high-risk nature of contract trading, especially under high leverage, where risks can be magnified significantly. This can be understood from the following aspects:
Leverage amplifies risks, leading to easy liquidation.
Capital utilization does not equal zero risk: The leverage of contracts (such as 100x, 125x) can amplify profits, but it also significantly amplifies losses. For example, with 100x leverage, a 1% fluctuation in coin price could wipe out the principal, and 'price spikes' (sharp price fluctuations within a short time) are very common, which can trigger liquidation within seconds, leaving no time for action.
Assuming you buy $10,000 worth of Bitcoin with 100x leverage, if the price drops by 1%, the entire $10,000 principal would be lost; however, in spot trading, a 1% drop only results in a loss of $100, showing a significant difference in risk between the two.Trading costs and mechanics increase risks.
Funding fees and premiums continuously consume the principal: perpetual contracts charge a 'funding fee' daily (paid mutually by both sides, which can be positive or negative, but long-term holding accumulates costs), while delivery contracts have a 'premium' (the difference between contract price and spot price). The longer the holding period, the higher the cost, which is akin to a form of 'hidden loss.'
Undisciplined holding equates to self-destruction: Many people do not set stop-loss orders when trading contracts, thinking 'it's fine if spot drops by 30%,' but under contract leverage, a 30% fluctuation could directly reduce the principal to zero (for example, with 3x leverage, a 33% drop would lead to liquidation), and during this process, one might be forced to cut losses due to margin pressure.Most people lack a trading system and discipline.
Treating contracts as gambling: With high leverage, the randomness of short-term market fluctuations is strong, and many people go all-in without understanding the rules, essentially betting on price movements rather than engaging in rational trading. For instance, thinking 'the support level won't break,' they go all in, and once the support level is breached, they are liquidated without considering their own risk tolerance.
Long-term investing is not suitable for contracts: Long-term investing should ignore short-term fluctuations, but contracts have holding costs (funding fees, premiums), and long-term holding faces the dual impact of price fluctuations and cost accumulation, which poses a far greater risk than spot trading, and could even result in a situation where 'the market rises but you lose money.'The premise for reasonably trading contracts.
If you must participate in contract trading, you must meet the following conditions: Clearly define the maximum loss range. For example, with a $100,000 principal, you can tolerate a $10,000 loss, and then calculate the position based on leverage (for instance, with 20x leverage, the maximum position would be $5,000, and a 20% drop would trigger a stop-loss, resulting in a $1,000 loss).
At the same time, use low leverage and strict stop-losses: leverage should not exceed 3x, and every trade must have a stop-loss set; never hold onto losing positions. Treat contracts as a tool to 'increase capital efficiency' (such as taking small long positions in a bull market), rather than 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 sufficient risk tolerance, trading contracts, especially with high leverage, is almost equivalent to gambling with the principal; liquidation is just a matter of time.
