Contract trading: the essence of high risk

Contracts (especially perpetual contracts) use leverage to amplify principal bets on price fluctuations. A principal of 10,000 with 10x leverage can control 100,000 in funds, but high returns come with high risks—liquidation means the margin is completely lost, and the exchange forcibly closes positions, leaving the account at zero. In the past year, liquidations on Bitcoin contracts alone reached hundreds of billions of dollars, with daily liquidations exceeding 1 billion dollars during extreme volatility.

Your opponent is not just the 'market'

  • Large holders and institutions: They hold substantial capital, have professional teams and data advantages, and excel at selling when retail investors chase prices and buying during panic, harvesting the retail investors.

  • Exchanges: They influence profits and losses through funding rates (mutual payments between longs and shorts) and 'spikes' (brief surges and drops). Under high leverage, funding rates can directly 'squeeze' profits.

  • Yourself: Emotional trading (chasing highs, cutting losses, high leverage) is the main reason for liquidation. Retail investors often exit during fear but miss the opportunity when institutions are accumulating positions.

Why is liquidation common?

  • The higher the leverage, the weaker the risk resistance: with 10x leverage, a 10% price reverse fluctuation results in liquidation, whereas a 10% daily fluctuation in Bitcoin is quite common.

  • The market is easily manipulated: large holders create false breakouts to lure investors in, and brief 'spikes' often lead to concentrated liquidations.

  • Psychological games are hard to withstand: 24-hour trading wears down mental resilience, and ordinary people find it hard to compete with algorithms and the patience of large holders.

Breakthrough suggestions

  1. Reduce leverage (1-3 times), leave room for error;

  2. Look at on-chain data (exchange balances, large holder positions), learn from institutional thinking;

  3. Spot is more stable: long-term holding (HODL), avoid contract gambling.