Write another tweet about leverage and positioning

Many people say not to play with contracts, which essentially means not to use leverage.

Leverage magnifies profits but also magnifies the weaknesses of human nature (such as desire, greed, luck)

But it is very realistic that small funds must be leveraged. The first is liquidity. If you only have 500U, but you are optimistic about 5 tokens at the same time, you now have two options in front of you, which is to start from 5 tokens. Choose the one you are most optimistic about, or choose to use 5x leverage to magnify the principal five times and buy 500U of these five tokens at the same time?

The rational choice should be the second one, because with certain skills, being optimistic means limited losses, but success requires some luck, and it is impossible to guarantee that the only one bet will be successful; and under the conditions of limited losses, In this case, diversified investment can expand returns to a greater extent.

OK, so here we understand that for small funds, leverage improves our capital utilization and improves the flexibility in operations.

Then let’s talk about the difference between nominal leverage and actual leverage. I will explain the following in layman’s terms, including my own understanding, which may not be the same as other people’s understanding.

Nominal leverage, I usually refer to the leverage of the current position. Many people feel scared when they see 100X leverage. If you have a principal of 1wu, you take 100U as a margin and use 100X leverage to enlarge the principal to 1wu. Now you still have Will it feel scary?

A 1% stop loss is only a loss of 100U, but you have to lose 100 times to lose all the money.

The usual fluctuation of BTC is only 2-3% points. Are you willing to use all your principal to bet on these 2-3 points? (Use all principal as margin and cannot do other operations)

Actual leverage, I usually think is the size of the current position corresponding to the total principal. If you have 1000U on hand, but the total of the one-way positions on hand (long and short hedging is not included in the discussion) is 5000U, then the actual leverage at this time is 5 times. I think this leverage is fine for BTC and ETH, but it is actually a bit dangerous for copycats. After all, as long as the reverse fluctuation is 20%, you will lose all your principal.

So what we really need to do is to use nominal leverage to make our transactions more flexible;Controlling the actual leverage allows us to have a higher fault tolerance rate, instead of resisting and resisting as soon as we hear about leverage.

There was a time when I was extremely resistant to leverage. Later I realized that I was resisting my heart, which was too weak to control my desires. But do you want to say that I can control it very well now?

I don’t dare to give a definite answer, because technology is easy to learn, but it will take me a lifetime to get through this level. Therefore, it is not completely unreasonable to resist leverage. It is also a means to control desires to a controllable level.