What Are the Dangers of Leverage for Crypto Beginners?
Many people force themselves to trade with high leverage due to pressure from those around them. However, some people would rather avoid leverage. So, what are the actual dangers of leverage for beginners?
#1 More Complicated Technical Risks.
Unlike the spot market, which has simpler mechanisms and no liquidity, when using derivatives, the technicals are much more complex. That's why many lose money in the derivatives market due to a lack of understanding of the necessary market mechanisms.
#2 Liquidation Risk.
When trading in the futures market, there is a potential liquidation risk. This risk means that if the price drops tens of percent from our entry point, we can lose our entire position. In more extreme cases, we can lose all our capital.
#3 Psychological Damage.
Many people end up trading crypto with leverage, watching the daily fluctuations of the PNL (Non-Performing Loan) and losing focus on their personal lives. Yet, they can focus on other things in crypto without disturbing their psychological well-being.
#4 Encouraging Emotions and Revenge Trading.
The "final" nature of PNL after closing and the clearly displayed PNL summary create a mindset of "really lost" money. That's why after they lose in futures trading, they tend to revenge trade with larger sizes and ultimately lose even more.
