How much leverage is reasonable for perpetual contracts!

Let me briefly explain what a perpetual contract is. A perpetual contract, as the name suggests, is a contract with an indefinite duration. In the current cryptocurrency derivatives trading market, perpetual contracts are considered a relatively new type of contract. The meaning of a perpetual contract is that, under the premise of not being liquidated, if you do not actively close the position, you can hold this contract indefinitely. So how much leverage is reasonable when trading? Someone asked me this question yesterday, so I’ll discuss it today.

Yesterday, while chatting with a fellow trader, he mentioned that he usually uses 50x leverage or 30x leverage. Taking Bitcoin as an example, 30x leverage requires $16, 50x leverage requires $10, and 100x requires $5. In the same market conditions, my personal suggestion is to only use 100x leverage. Why? Because once you use leverage in trading, whether it’s 1x or 100x, you are taking on leverage risk. Under the same market conditions, the returns generated by 1x leverage and 100x leverage are vastly different. Some might say that the risk of 1x leverage is lower, which is true; however, for Bitcoin, if you use 1x leverage, currently one contract requires over $470, and without significant price increases, you will definitely incur losses due to transaction fees, and even if there are small profits, they won’t be substantial. What I want to express is that since you have chosen to trade with leveraged contracts, you should maximize the use of that leverage and only use 100x leverage.

In many cases, what happens is that with limited funds, traders engage in contracts that do not match their current capital. With insufficient margin, they cannot support the current market, which may lead to being liquidated in a slightly more volatile market. When the market later turns profitable, it has nothing to do with you, as the contracts we held have become invalid. Therefore, when trading perpetual contracts, if conditions allow, we should prepare a little more margin for ourselves as a precaution. Regardless of what investment we make, there are risks involved; what we need to do is to minimize those risks.