Who understands, family! Two years ago, I was watching the ETH trend to trade contracts, with all directional judgments correct, but ended up losing 800,000 in three months. I was up late at night reviewing the contracts, and it hurt my head. It turned out that the market wasn't wrong; I had stepped into the “harvest trap” set by the market makers! As a veteran in crypto trading for 5 years, today I will share my hard-earned tips to help newcomers avoid 3 years of detours!
The first pitfall: the funding rate's “retail crowd warning”, this is the “squeeze signal” from the market makers! Like many novices, I used to only focus on K lines and completely ignored the funding rates. Last year, while holding ETH long positions, the funding rate skyrocketed to 0.13% for two consecutive days, and I blissfully thought that “getting the direction right guarantees profit”, only to have a massive bearish candle on the third day that hit my stop loss. It was only later that I understood: the funding rates on mainstream exchanges essentially serve as a “long-short balancer”. Once it exceeds 0.11% for two consecutive days, it indicates that retail investors are clustered in the same direction. A high long funding rate means everyone is going long; if the market makers aren't squeezing you, who are they squeezing? The same goes for a high short funding rate! Now, the first thing I do when the market opens is check the funding rates; as long as it exceeds 0.11% for two consecutive days, I directly open a small position in the opposite direction to test the waters. Last month, the ETH long funding rate soared to 0.14%, so I decisively opened a small short position and made 12% in three days. This profit was made by “countering retail operations”!
The second pitfall: the "invisible extraction" in the liquidation price, your safety cushion is not safe at all! When I first started trading contracts, I made a basic mistake: I used 15x leverage on SOL, thinking that a drop of 6.7% would trigger a forced liquidation, but it dropped to 5.8% and I was taken by the system. After checking the bill, I found that mainstream exchanges hide a 1.2% forced liquidation fee! This extra 1% difference is the "safety cushion pie" drawn by the dealers for retail investors. When you think you haven’t reached the liquidation price, they directly harvest you. Now, before I open a position, I must calculate the "actual liquidation price": using 15x leverage, I set a stop loss at a 5% drop, and for 10x leverage, I calculate at an 8% drop, resolutely avoiding the theoretical liquidation price. Remember! The hidden fees of exchanges are always more than you think; leaving a buffer of 1%-2% is necessary to avoid being "precisely harvested."
The third pitfall: high leverage is a "water extractor", not an "accelerator"! When I first entered the market, I was obsessed with high leverage, thinking that 40x leverage would earn quickly. As a result, after holding the position for 6 hours, the fees and funding costs ate away 7% of the principal. This isn't making money; it's clearly working for the exchange! It wasn't until later that I realized: the fee rate for high leverage is calculated based on the magnified position. The longer you hold the position, the more "extraction" you face. Even if you are right about the trend, the fees will slowly drain you. Now, I only use a maximum of 8x leverage and only engage in ultra-short trades; I run away as soon as I make 2.5%, never holding overnight. Don’t doubt it; last year I reduced my leverage from 40x to 8x, directly saving 60% on fees, while my win rate increased from 40% to 70%. High leverage is like drinking strong liquor: it feels good for a moment but leaves you broke!
The last share of my ballast strategy: 40% of the position in spot to stabilize the bottom, 40% of the position using 2-4 times leverage for short contracts, and 20% of the position reserved in USDC. In fact, trading contracts is not about "betting on trends", but rather about "earning cognitive differences". The more pitfalls you avoid, the more stable your earnings will be. Those shouting about "getting rich with 40x leverage" are likely just the dealers' pawns!
