Two types of position methods differ in leverage and capital efficiency, but the core is risk and reward.

Common points:

The actual position size is the same:

1000 USDT * 10x leverage = 10,000 USDT position.

2000 USDT * 5x leverage = 10,000 USDT position.

Your exposure to the market is the same; a 1% market fluctuation will lead to a profit or loss of 100 USDT.

Differences:

Different liquidation risks:

Opening a 10x leverage position with 1000 USDT: liquidation price is closer because of high leverage; if the price fluctuates slightly in the opposite direction, your margin (1000 USDT) will quickly become insufficient, leading to a high liquidation risk.

Opening a 5x leverage position with 2000 USDT: the liquidation price is far, and the market needs a larger reverse fluctuation to cause liquidation, making it relatively safer.

Capital utilization efficiency:

Opening a 10x leverage position with 1000 USDT: saves 1000 USDT, and the remaining money can be used for other positions or as backup funds.

Opening a 5x leverage position with 2000 USDT: low capital utilization, more money is tied up in the position, but the risk is small.

Psychological pressure:

High leverage (10x) brings greater psychological pressure because even slight market fluctuations can lead to drastic unrealized profits and losses. Lower leverage makes it easier to maintain a stable mindset.

So why do so many people still enjoy trading contracts despite the high risk of liquidation?

It's all human nature!

In the cryptocurrency world, you often see some bloggers bragging about using 5x or 10x leverage, casually saying, 'The leverage is already small.' Every time I see such comments, I can't help but laugh. Leverage is not calculated this way. The leverage displayed by the platform is just a number and has little to do with your actual risk. What truly determines your life or death is your understanding and management of risk.



The true meaning of leverage: risk, not the multiplier.


Many people think that using 5x leverage is 'conservative' and using 10x leverage is 'aggressive'. But in reality, the core of leverage lies in risk control, not in the multiplier itself. For example, if you open a position with 10x leverage but only use 1% of your capital, your actual risk may be lower than using 2x leverage with a full position.

Everyone knows how volatile the cryptocurrency market is. A daily fluctuation of 20% is common. Therefore, opening positions evenly over multiple times is the way to go. Each time, use only 10% to 20% of your capital for opening positions, keeping the overall position controlled between 2x (short) and 4x (long). At the same time, the stop-loss risk at any given moment should not exceed 20% of the capital, and it's best to control the long-term average risk around 10%. This means that many times, you should be in a cash position.

Some may ask: 'Then why do contracts at all? Why not just buy the spot directly?' Haha, this may offend the entire cryptocurrency community, but I want to ask: do you want to earn coins or earn money? When a bear market comes, is it the coins that are safe or the USDT? When you spend money, are you spending coins or USDT? The flexibility of contracts cannot be compared to spot trading.

The essence of contracts: trading risk, not trading dreams.

Trading contracts and investing in coins are two different matters. Investing in coins is more like venture capital; you can hold for the long term and bear losses while waiting for a bull market to come. But contract trading is completely different; the essence of a contract is to trade risk. You need to earn money through risk management and expectations.

You can choose not to believe in technical analysis, not to believe in market makers, not to believe in candlesticks, or even not to believe in Bitcoin. None of these will prevent you from making money.

But you must understand risk. What is risk? How to control risk? How to calculate risk? How to operate risk? How to withdraw from risk? How to survive? These questions are the core of contract trading.

"You cannot earn money outside your cognitive range." This statement is particularly applicable in contract trading. If you invest in a coin and its price doubles, you earn 100%; but with a contract using 3x leverage, you earn 300%. Where does the extra 200% come from? It actually comes from the money of others who have been liquidated. To get this money, first, you must ensure you do not get liquidated.

Looking at the market from the risk perspective: the viewpoint from the top of the mountain versus that from the bottom.

Viewing the market from a risk perspective is completely different from how ordinary people view the market. It's like looking at a mountain from the bottom versus overlooking it from the top; they are fundamentally different concepts. For example, those who buy coins can hold their positions until prices rise; if they incur losses, they bear it, emphasizing patience. But in contract trading, if you do the same, you likely won't survive past the first three episodes.

Operations based on risk management are completely different from those based on dreams. In the trading market, dreaming costs money, while those who manage risks strive to seize that money. So, do you want to be a 'dreamer' or a 'risk manager'? That depends on you. But if you choose to be a 'dreamer', then don't touch contracts, because contracts will shatter your beautiful dreams within days.

Opportunities to pick up money: staying alive is the hard truth.

Anyone who makes big money in contract trading will have a feeling: 'That period felt almost like picking up money.' That's right; when opportunities arise, the market seems to be handing you money. But the problem is that when the opportunity comes, you need to be alive and have the capital to pick up that money.

There are too many people in the cryptocurrency world driving recklessly on the edge of a cliff, while all you need to do is wait at the bottom of the cliff and pick up some parts to get by. The difficult part is that contract trading is counter-intuitive. Whenever you are eager to increase your position or open a position, you need to remind yourself: going against human nature is the key to making money.

The professionalism of contract trading: an analogy between flying a plane and speculation.

I often compare contract trading to flying a plane. If someone who doesn't know how to fly forces themselves to do so, the result is a crash; similarly, if someone who doesn't know how to trade contracts forces themselves to do it, the result is liquidation. Risk management and stop-loss management are like the basic skills of flying a plane. Only by mastering these can you ensure that you at least won't die.

It is now 2024, and many teams have very simple operating strategies: shorting most coins while timing to go long on BTC for hedging. This strategy sounds simple, but 80% of people still can't make money. Because behind the strategy are countless details: why not short BTC?

Why is shorting more conservative than going long? How should stop-losses be set? These questions require deep thinking and practice.

Summary: Contract trading is a profession.

Contract trading is superficially about buying and selling, but it requires a lot of learning and training behind the scenes. It is not something that beginners can play with casually, but it is not an unattainable skill either. As long as you study risk management seriously and master stop-loss techniques, you have a chance to survive in the cryptocurrency contract market and even make a lot of money.

The cryptocurrency world is both an opportunity and a scythe; if you want to defy the heavens and change your fate, first control your hands and stabilize your mind.