Evaluation of the risks of financial leverage trading in future perpetual: a story felt
The world of cryptocurrencies has seen a significant increase in popularity in recent years, with many investors who flock to digital currencies such as Bitcoin and Ethereum. A way to participate in these markets is through trading for perpetual futures, which allows traders to buy or sell contracts on the expiry date at any price they choose. However, a great risk comes with great power, especially when it comes to taking advantage of trading. In this article, we will evaluate the risks of the negotiation of financial leverage in future perpetual and we will provide a guide for investors who wish to participate in these markets.
What is commercial lever in perpetual future?
The financial leverage in perpetual futures involves the purchase or sale of contracts with a margin that allows traders to control multiple financial units than those they actually have. This means that if the price of the underlying activity moves against the trader, it can lose a significant part of their initial investment. In the case of future perpetual, the lever is generally 5: 1, which means that for each $ 100 exchanged, the size of the trader’s position would be equivalent to $ 500.
Risks of financial lever in perpetual futures
Although lever trading can provide high returns, it also has significant risks. Here are some key risks to consider:
- Risk of liquidity : When it comes to future perpetual, liquidity is often limited due to the low volume of operations and lack of market maker. This means that traders can have difficulty selling their positions quickly or at a favorable price.
- Risk of volatility
: the future perpetual are designed for high frequency trading and are generally exchanged on intraday markets. However, this also means that prices can move quickly and traders must be prepared for unexpected prices of prices.
- Risk of the Market Maker : When it comes to future perpetual, market makers play a crucial role in providing liquidity to the market. If these market makers are not able to provide sufficient liquidity, prices can become volatiles and operators may lose control of their positions.
- risk of financial leverage exposure : as mentioned above, the financial lever has great power and excessive exposure can lead to significant losses if the price of the underlying activities moves against the trader.
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Examples of real life of trading levante risks
Several examples illustrate the risks associated with financial leverage trading in perpetual future:
- Futures Bitcoin:
In 2018, the Futures Bitcoin were launched by the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE). However, there was a remarkable accident in which a merchant was unable to sell their position quite quickly, with consequent significant losses.
- Futures Ethereum:
In December 2020, the future Ethereum were launched by the CME. The platform had liquidity problems, leading to a stop and significant losses for traders.
mitigating the risk with adequate trading strategies
To minimize the risks associated with financial leverage trading in perpetual future, it is essential to use adequate trading strategies. Here are some key suggestions:
- Setting up arrest orders : The setting of the stop orders can help limit potential losses if the prices move against the trader.
- Using the sizing of the position : the use of position sizing techniques can help control exposure and reduce the risk.
- Diversifies your portfolio : spreading investments in multiple activities can help mitigate the risks associated with any particular activity.
- Monitor market conditions
: constantly monitor market conditions and adapt trading strategies according to needs can help reduce risks to a minimum.