These 4 key numbers in crypto: get just one wrong, and you could lose most of your principal without even realizing it!
How much can averaging down really lower your cost? Why is your account still losing money with a 60% win rate? If you use 20x leverage, how much do you lose when the price moves 1% against you?
If you haven’t got these basic calculations straight, don’t rush into futures trading.
1. Averaging down isn’t mindlessly lowering your average cost—the key is your true average cost. Buy 1000U worth of a coin at 10U and you get 100 coins; if it drops to 5U, invest another 1000U to buy 200 more.
You’ve invested 2000U in total and now hold 300 coins, so your average cost is about 6.67U—not 7.5U, as many people mistakenly think. But a lower cost doesn’t mean your risk has gone down too; you’ve simply put another chunk of new money into the position.
2. Don’t take the myth of earning 1% a day through compounding at face value. With 100,000U compounding at 1% daily for 250 days, you’d theoretically end up with 12.03 million U—a hugely tempting figure.
But just one drawdown along the way can change the outcome completely. And once you subtract hidden costs like fees and slippage, your actual returns will be lower still.
Treating 1% a day as a mandatory target will only push you into making reckless, pointless trades.
3. Even with a 60% win rate, your account can keep shrinking. Suppose you make 5% on a winning trade and lose 10% on a losing one. Out of 100 trades, you win 60 and lose 40—and when you add it all up, you’re still down.
Focusing only on your win rate and ignoring your risk-reward ratio is like keeping track of your income while completely ignoring what you spend. It’s bound to cause problems sooner or later.
4. With 20x leverage, a 1% move in the wrong direction can cost you nearly a fifth of your margin. If you use 1000U of margin to open a position with a notional value of 20,000U, and the asset moves 1% against you,
that position loses 200U—equal to 20% of your margin—and that’s before trading fees. The actual liquidation price also depends on your margin mode and the platform’s rules.
First, get a clear handle on the basics: averaging-down costs, risk-reward ratios, and the risks that come with leverage. Getting the market direction wrong isn’t the scary part. The scariest thing is not even having a clear idea of how much you could lose on a single trade.
How much can averaging down really lower your cost? Why is your account still losing money with a 60% win rate? If you use 20x leverage, how much do you lose when the price moves 1% against you?
If you haven’t got these basic calculations straight, don’t rush into futures trading.
1. Averaging down isn’t mindlessly lowering your average cost—the key is your true average cost. Buy 1000U worth of a coin at 10U and you get 100 coins; if it drops to 5U, invest another 1000U to buy 200 more.
You’ve invested 2000U in total and now hold 300 coins, so your average cost is about 6.67U—not 7.5U, as many people mistakenly think. But a lower cost doesn’t mean your risk has gone down too; you’ve simply put another chunk of new money into the position.
2. Don’t take the myth of earning 1% a day through compounding at face value. With 100,000U compounding at 1% daily for 250 days, you’d theoretically end up with 12.03 million U—a hugely tempting figure.
But just one drawdown along the way can change the outcome completely. And once you subtract hidden costs like fees and slippage, your actual returns will be lower still.
Treating 1% a day as a mandatory target will only push you into making reckless, pointless trades.
3. Even with a 60% win rate, your account can keep shrinking. Suppose you make 5% on a winning trade and lose 10% on a losing one. Out of 100 trades, you win 60 and lose 40—and when you add it all up, you’re still down.
Focusing only on your win rate and ignoring your risk-reward ratio is like keeping track of your income while completely ignoring what you spend. It’s bound to cause problems sooner or later.
4. With 20x leverage, a 1% move in the wrong direction can cost you nearly a fifth of your margin. If you use 1000U of margin to open a position with a notional value of 20,000U, and the asset moves 1% against you,
that position loses 200U—equal to 20% of your margin—and that’s before trading fees. The actual liquidation price also depends on your margin mode and the platform’s rules.
First, get a clear handle on the basics: averaging-down costs, risk-reward ratios, and the risks that come with leverage. Getting the market direction wrong isn’t the scary part. The scariest thing is not even having a clear idea of how much you could lose on a single trade.
