I thought the leverage was just a way to make money faster on the same price movement 😅. I went and counted the numbers instead of trusting the word.
Turns out the math is symmetrical in the worst sense — worse than I imagined.
A perpetual futures contract on a stock in TradFi isn’t ownership of an asset. It’s a bet on its price with settlement in USDT. Leverage increases your position relative to the collateral, and price moves in both directions are multiplied too.
What I figured out for myself:
— with 5x leverage, a 5% drop in the underlying price wipes out all of the collateral capital — what would be just a “drawdown” without leverage becomes a liquidation here;
— besides price movement, there’s also the funding rate — a periodic payment between longs and shorts, which eats up profit even when the market is sideways;
— liquidation happens automatically and quickly — there’s simply no time to “wait for a rebound.”
So “make money twice as fast” and “lose money twice as fast” are literally the same mechanism, just from opposite sides.
For myself, I decided: I use leverage only in an amount that I’m okay losing immediately.
Not investment advice — just sharing my own calculations.
Have you tried TradFi with leverage, or do you hold only spot positions?👇
@Binance_Ukraine #TradFi