Hello everyone, today I want to talk to you about the choice of leverage in perpetual contracts. We know that perpetual contracts, as a relatively new trading method in the cryptocurrency derivatives market, have attracted more and more cryptocurrency enthusiasts to participate. However, many friends often ask, how much leverage is reasonable? Today, I will share some of my personal experiences and advice.
1. Basic concept of perpetual contracts.
First, let me briefly introduce what perpetual contracts are. As the name suggests, a perpetual contract is a contract without an expiration date, which can be held indefinitely until you actively close it or get liquidated. Unlike traditional contracts, it does not have a fixed delivery date, so as long as you don't get liquidated, you can hold this contract forever and enjoy the potential gains from market fluctuations.
However, one important feature of perpetual contracts is the leverage effect. The higher the leverage, the greater the potential returns, but at the same time, the risk also increases exponentially.
2. How to choose the leverage multiplier?
In actual trading, we see many people choosing to open 50x or even 100x leverage. Are these multipliers really reasonable? How much leverage should one choose to be considered wise?
1. The relationship between leverage and returns.
First, we must understand one point: whether it's 1x leverage or 100x leverage, there is leverage risk involved. The greater the leverage, the more significant the market fluctuations affect your funds. For example:
• Taking Bitcoin as an example, if you choose 30x leverage, the required margin is 16U;
• If you choose 50x leverage, the required margin drops to 10U;
• Choosing 100x leverage only requires 5U margin.
However, the greater the leverage, the greater your risk. For instance, while the profit from 100x leverage may seem tempting, a slight market fluctuation could lead to severe losses or even liquidation.
2. How to choose the leverage multiplier.
As someone who has been involved in contract trading for a long time, I personally recommend that if conditions allow, you can appropriately increase the leverage multiplier, especially when your capital is substantial, choosing 100x leverage can actually yield higher returns. This is because, in a relatively stable market, the returns from 1x leverage are far inferior to those from 100x leverage.
However, it is important to note that if you have limited funds, even if you choose a lower leverage, you might still face liquidation due to insufficient margin. Therefore, when funds are limited, it is recommended not to blindly pursue high leverage, but to reasonably control the leverage multiplier to ensure you have enough funds to support the risk.
3. Risk control and reasonable position management.
Many people often overlook risk control when trading contracts. In fact, position management is more important than choosing the leverage multiplier. When using leverage, it is essential to allocate it reasonably to avoid concentrated risk.
1. Appropriate increase of margin.
In perpetual contract trading, preparing the margin is crucial. If your margin is low, even slight market fluctuations could lead to liquidation. To avoid this situation, it is advisable to increase the margin appropriately, especially during times of high market volatility, so you can better cope with sharp fluctuations and avoid forced liquidation.
2. Cut losses in a timely manner to avoid 'holding onto losing positions'.
In contract trading, many people suffer enlarged losses because they are unwilling to cut losses, ultimately leading to liquidation. Remember, timely loss-cutting is crucial, especially when the market shows adverse trends; be brave to cut losses and avoid excessive losses.
3. Isolated position mode to reduce risk.
I personally recommend using the isolated position mode, which can effectively disperse risk. Each time you open a position, allocate it reasonably based on your account balance to avoid losing everything in one position.
4. Set clear profit targets.
In contract trading, not only should you control risks well, but you should also have clear profit targets. For example, set a daily profit target of 50-100U, leading to a monthly profit target of 1500-3000U. If you can follow your plan and operate persistently, even in a highly volatile market, you can gradually accumulate profits.
But it is crucial to note that in actual trading, there may be unforeseen factors, such as sudden market fluctuations that prevent profit targets from being met. Therefore, completing the target within 20 days is also acceptable; the most important thing is to maintain a stable profit status.
5. Summary.
Whether you are a novice or an experienced trader, operating perpetual contracts relies on reasonable leverage choices and effective risk control. Proper use of leverage can maximize returns, but it is also important to control risks and avoid blindly pursuing high leverage that could lead to liquidation.
When operating perpetual contracts, remember the principle of 'being prepared'. Appropriately increase the margin, avoid 'holding onto losing positions', cut losses in a timely manner, allocate positions reasonably, and set clear profit targets. Only in this way can you steadily profit in the cryptocurrency contract market.
I hope my sharing is helpful to everyone, and I wish you all good luck in contract trading and continuous profits!
