"Avoid Losing Your Capital Due to Lack of Strategy!"
The Futures market offers great profit opportunities, but it can also be extremely risky if you do not know how to manage your risk correctly. Many traders end up liquidated because they do not adopt safe strategies.
Want to trade more securely and protect your capital? Then check out these essential tips!
What is a Liquidation in Futures?
When you trade futures contracts with leverage, the exchange automatically closes your position if the market moves against you and your margin balance is insufficient to cover the losses. This is called liquidation.
Example:
If you open a position with 20x leverage and the market moves only 5% against you, your position may be liquidated, resulting in a total loss of the margin balance used in the trade.
The higher the leverage, the smaller the margin for error and the greater the risk of liquidation!
Strategies to Avoid Liquidations
1. Use Leverage with Moderation
Leverage amplifies both gains and losses. The higher the leverage, the greater the risk of being liquidated with small price variations.
Tip:
If you are a beginner, do not exceed 3x or 5x leverage until you gain experience.
If you are an experienced trader, adjust leverage according to the asset's volatility.
2. Always Use Stop-Loss
The stop-loss is your protection against uncontrolled losses. It automatically closes your position when the price reaches a predefined level.
Tip:
Set the stop-loss below your entry point in long trades (buy).
Set the stop above your entry point in short trades (sell).
Never trade without a well-calculated stop!
3. Do Not Use Your Entire Balance in a Single Trade
One of the biggest mistakes traders make is putting 100% of the available capital into a single trade. This increases the risk of total liquidation if the market moves against you.
Tip:
Use only 1% to 5% of your total capital in each trade.
Never risk an amount you cannot afford to lose.
4. Manage Your Margin Smartly
When trading futures, you can choose between Cross Margin and Isolated Margin:
Isolated Margin: The loss is limited to the amount used in the trade. Safer for those who want to avoid larger losses.
Cross Margin: Uses the entire account balance to cover the position, increasing the risk of total liquidation.
Tip: If you are a beginner, prefer isolated margin to protect your capital!
5. Avoid Trading During Times of High Volatility
The crypto market can have very sharp variations due to events such as economic data, regulatory announcements, or large mass liquidations.
Tip:
Avoid trading during important news, such as US CPI or Fed decisions.
Always check the Fear & Greed Index and the funding rate before entering a trade.
6. Monitor Your Risk/Return Before Entering the Trade
Every trade should have a well-defined risk/reward plan. If the potential profit is too low compared to the risk, it is not worth entering the trade.
Tip:
Always seek a risk/reward ratio of at least 1:2 or 1:3.
That is, for every $1 of risk, you should have the possibility of earning at least $2 or $3.
Conclusion: Protect Your Capital and Trade Smart!
The Futures market can be profitable, but only if you manage risk well and avoid unnecessary liquidations.
Use leverage with moderation.
Always trade with a stop-loss.
Do not put your entire balance into a single trade.
Prefer isolated margin to limit losses.
Avoid trading during high volatility events.
Always calculate your risk/reward ratio before entering the trade.
And you, have you ever gone through a liquidation? How do you manage risk in your trades? Leave your comment below and share your experience!
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