High Leverage, High Volatility, Irrational Trading

The phenomenon in contract trading where the speed of losses exceeds that of profits is mainly caused by the following core factors:

1. High Leverage Effect

Contract trading typically employs a high leverage mechanism, allowing investors to control large contracts with only a small margin. While this leverage can amplify profits, it also multiplies losses. For example, a margin of 100,000 yuan can control a contract worth 1,000,000 yuan; if the price fluctuates by 10%, the actual profit and loss reach 100,000 yuan, significantly accelerating the loss speed.

2. High Market Volatility

Contract prices are influenced by multiple factors including macroeconomics, policy changes, and supply-demand relationships, with volatility far exceeding that of ordinary investment products. For instance, geopolitical conflicts can cause drastic fluctuations in crude oil futures prices; if investors misjudge the direction, they may face rapid losses.

3. Irrational Trading Behavior

Emotional Trading: Emotions such as greed and fear can lead to irrational decisions, such as blindly chasing gains and cutting losses, exacerbating capital loss.

Lack of Risk Management: Failing to set reasonable stop-loss points or overly relying on a single strategy (such as holding on stubbornly or heavy trading) can easily lead to liquidation during market fluctuations.

Speculative Mentality: Some investors view contract trading as a means to get rich quickly, ignoring its high risks, leading to excessive leverage and frequent trading.

4. Forced Liquidation Risk

When the margin is insufficient, contracts may be forcibly liquidated, resulting in total loss of principal for investors. This risk is particularly prominent in leveraged trading.

5. Market Patterns and Investor Composition

About 90% of participants in the contract market are losers, with only 10% making profits, reflecting the structural characteristics of high risk and low return. Additionally, there is a general lack of professional knowledge among investors, further increasing the probability of losses.

Summary

The high-risk nature of contract trading stems from high leverage, high volatility, and irrational behavior, while market mechanisms and investor psychological factors exacerbate this phenomenon. It is recommended that investors establish strict risk management rules, avoid emotional trading, and fully recognize the speculative nature of contract trading.