I’ve noticed that people who trade futures are especially prone to being led astray by one thing: leverage.
At 10x, you feel like you’re safe; at 50x, you feel like you’re playing with fire. But once you’ve been doing this for a while, you realize that how much your account hurts when it takes a loss has nothing to do with how big that “X” is. In the same 5% drop, one person’s account is only down a little, while another is already panicking and closing their position. What’s the difference? Position size.
I’ve been through this myself. Back then, I was especially afraid of high leverage, so I deliberately kept it low, thinking that would keep me safe. As a result, I kept opening bigger and bigger positions, and still felt pretty comfortable. It wasn’t until the market moved against me that I realized low leverage couldn’t save me. Because what I’d really got wrong wasn’t how much leverage I used—it was that I hadn’t worked out how much I was actually risking on that trade. These days, when I look at a futures trade, I don’t start by looking at the leverage. First, I boil it down to one simple question: “If the price moves against me all the way from here, what’s the most I could lose?” If I can’t accept that number, I don’t take the trade. If I can, I adjust my position size based on my entry point and stop-loss distance. When the position size is right, leverage is simply a tool for working with margin.
So sometimes you’ll see two people using the same 20x leverage: one keeps their position light, while the other gets squeezed until they can hardly breathe. The number looks the same, but the actual risk they’re taking is completely different. That’s the biggest change in how I trade futures now. Before, I’d think, “How much can I make on this trade?” Now, my first thought is, “If I’m wrong, am I willing to pay this much for the lesson?” Think that through before you hit the button to open a position.
A lot of liquidations don’t happen because someone got the direction wrong. They happen because the position is already so large that there’s no room to recover by the time the market moves just a little in the wrong direction.
At 10x, you feel like you’re safe; at 50x, you feel like you’re playing with fire. But once you’ve been doing this for a while, you realize that how much your account hurts when it takes a loss has nothing to do with how big that “X” is. In the same 5% drop, one person’s account is only down a little, while another is already panicking and closing their position. What’s the difference? Position size.
I’ve been through this myself. Back then, I was especially afraid of high leverage, so I deliberately kept it low, thinking that would keep me safe. As a result, I kept opening bigger and bigger positions, and still felt pretty comfortable. It wasn’t until the market moved against me that I realized low leverage couldn’t save me. Because what I’d really got wrong wasn’t how much leverage I used—it was that I hadn’t worked out how much I was actually risking on that trade. These days, when I look at a futures trade, I don’t start by looking at the leverage. First, I boil it down to one simple question: “If the price moves against me all the way from here, what’s the most I could lose?” If I can’t accept that number, I don’t take the trade. If I can, I adjust my position size based on my entry point and stop-loss distance. When the position size is right, leverage is simply a tool for working with margin.
So sometimes you’ll see two people using the same 20x leverage: one keeps their position light, while the other gets squeezed until they can hardly breathe. The number looks the same, but the actual risk they’re taking is completely different. That’s the biggest change in how I trade futures now. Before, I’d think, “How much can I make on this trade?” Now, my first thought is, “If I’m wrong, am I willing to pay this much for the lesson?” Think that through before you hit the button to open a position.
A lot of liquidations don’t happen because someone got the direction wrong. They happen because the position is already so large that there’s no room to recover by the time the market moves just a little in the wrong direction.
