The hidden knife's edge behind high leverage licks blood rather than honey.
"In five days, 2000 yuan turned into 60,000!" A friend who just entered the circle excitedly told me over the phone, his voice trembling with disbelief. Before I could remind him, he fell into another extreme: "A few days later, the 60,000 yuan was down to just a few hundred."
This kind of story is not new in my circle of readers; almost every week someone comes to me to share a similar experience. Among those who trade contracts, nine and a half out of ten end up losing money; the only one making money is simply someone who hasn't yet encountered that 'accident'.
As an analyst who has navigated the cryptocurrency market for many years, I want to say this today: contract trading is a one-way street for ordinary people.
The traps behind the celebration
That friend initially only used 2,000 yuan to test the waters, thinking 'I won't feel bad if I lose.' As luck would have it, he caught a wave in the market, and his account balance quickly soared to 60,000. During that time, he felt elated, thinking the cryptocurrency market was an ATM, and money came easier than dreaming.
This psychological shift is the most dangerous phase in contract trading. Short-term profits can mislead one into thinking it is their own ability rather than market conditions, leading to fatal overconfidence.
Leverage is a double-edged sword. With 5x leverage, a 20% reverse market movement could lead to liquidation; with 10x leverage, it only takes a 10% reverse movement; and with 50x leverage, just a 2% price fluctuation is enough to wipe you out. The cryptocurrency market itself is highly volatile, with 24/7 trading and no limits on price fluctuations, where thousands of dollars of movement is commonplace. In such a market, abusing high leverage is akin to riding a fast bike at the edge of a cliff.
Liquidation - the nightmare of contract traders
Liquidation, or forced closure, is the most feared scenario for every contract trader. When market prices fluctuate sharply and the margin for positions is insufficient, exchanges will force liquidation, potentially causing the investor's principal to drop to zero in an instant.
Think about the lesson given by Mr. Ma from Heilongjiang: 'If you have 10,000 in principal and always bet the entire 10,000, you might win 9 out of 10 times, but that 10th time you lose will wipe everything out.'
On March 12, 2020, Mr. Bao from Wuhan experienced a painful liquidation. He had opened a Bitcoin short contract with more than thirty times leverage, thinking he was safe, but in a short time, he faced extreme market conditions, and over 500,000 in margin was instantly liquidated to zero.
Even scarier is that some people lose money even when Bitcoin is surging. Mr. Bao later kept going long after Bitcoin reached 14,000 dollars but was liquidated all the way down, currently facing a loss of approximately 2 million.
Why is contract trading so dangerous?
Contract trading is a financial derivative that allows you to predict and trade the future price of cryptocurrencies without actually holding the assets. It introduces a leverage mechanism that can significantly amplify potential returns but also multiplies trading risks.
This is fundamentally different from spot trading. Spot trading involves directly buying and selling cryptocurrencies; buying low and selling high can generate profits, with the risk capped at your investment principal. In contract trading, due to the presence of leverage, potential losses can far exceed the principal, even leading to liquidation, leaving you with nothing.
The cryptocurrency market is known for its extreme volatility. Contract trading in such a volatile environment further amplifies the risks. Prices can fluctuate drastically and unpredictably in a short time, making it difficult for even experienced traders to completely avoid risk.
Survival rules summarized from painful lessons
If you still decide to try contract trading (though I strongly advise against it), please at least remember the following points:
Never use your entire margin. This is the most crucial rule. Mr. Ma, a cryptocurrency trader from Heilongjiang, learned from his liquidation that he must exercise restraint in position management. He now generally only invests 10% of his Bitcoin holdings in contracts. Full-margin operations are the fastest path to liquidation.
Use isolated margin rather than cross margin. In isolated margin mode, each contract position is independent; if one position is liquidated, only the margin for that position is lost, and it won't affect the other funds in the account. In cross margin mode, all positions share the margin, and a loss in one position can trigger a chain reaction.
Strictly control leverage multiples. It is recommended that beginners use leverage below 3 times to effectively reduce the impact of market volatility on positions. High leverage may bring temporary pleasure, but in the long run, high leverage is one of the main causes of liquidation.
Always set stop-loss orders. Set a reasonable stop-loss price when opening a position; if the market trend goes against your expectations, the automatic stop-loss can prevent triggering liquidation. Many traders, due to excessive confidence, do not set stop-loss orders, resulting in the market moving against their predictions, ultimately leading to total liquidation.
My personal opinions and suggestions
In my years of market observation, contract trading feels more like gambling than investing. As Mr. Bao candidly stated, 'Actually, playing contracts is gambling; whatever you play is gambling. If you don't have luck, take a break and don't play.'
The cryptocurrency market itself is already highly volatile, and adding leverage is like pouring oil on fire. If you are new to the cryptocurrency space, please stay away from contract trading and start with spot trading to familiarize yourself with the market. Even relatively cautious traders like Mr. Zhou admit that 'using leverage tests your understanding of yourself,' and he rarely trades contracts, occasionally using a few thousand dollars to play with two times leverage.
Behind the illusion of quick profits in cryptocurrency, there are extremely high risks. Only by maintaining a calm mindset and investing steadily can one go far in this market. Remember, the vast majority of people don't wait for a turnaround; their accounts have already gone to zero.
We love money, but this 'dream money' that comes quickly and goes even faster is truly something to avoid. Real investment is a marathon, not a sprint. In this volatile cryptocurrency market, surviving is more important than making quick money.
I hope these honest words can help you navigate the cryptocurrency market more steadily and further. If you have more questions, feel free to communicate at any time.#巨鲸动向 $ETH
