Before answering this question, let me briefly explain what perpetual contracts are. A perpetual contract, just like its name, is a contract with a permanent renewal period. In the current digital currency derivatives trading market, perpetual contracts are considered a relatively new type of contract. The meaning of a perpetual contract is that without liquidation, if you do not actively close the position, you can hold this contract indefinitely. So how much leverage is reasonable when trading? Someone asked me this question yesterday, so I’ll discuss it today.

Yesterday, I discussed with a crypto friend who usually trades with 50x leverage or 30x leverage. Taking Bitcoin as an example, 30x leverage needs 16U, 50x leverage needs 10U, and 100x needs 5U. Under the same market conditions, my personal suggestion is to only use 100x leverage. Why? Because once you use leverage in trading contracts, whether it’s 1x or 100x, it comes with leverage risk. Under the same market conditions, the returns from 1x leverage and 100x leverage are vastly different. Some might say that 1x leverage carries lower risk, which is true; but taking Bitcoin as an example, if you are using 1x leverage, currently one contract needs over 470U. Without a significant price increase, you will definitely incur losses due to transaction costs. Even with a small profit, it won’t be significant. What I want to express is, since you’ve chosen to trade leveraged contracts, you should maximize the use of this leverage and only use 100x leverage.

In many cases, what is it like? Using insufficient funds to trade contracts that do not match current capital, with low margin unable to support the current market, may lead to liquidation during volatile market conditions. When profitable markets arise afterward, they have no relevance to you. At this point, the contracts we hold become invalid. Therefore, when trading perpetual contracts, we should appropriately increase our margin under permissible conditions. Better safe than sorry. Regardless of the investment, there is risk involved. Our job is to minimize that risk and then look at the benefits. Holding onto losing positions is a big taboo in trading contracts; timely cutting losses is very necessary.

Timely cutting losses, combined with the position-by-position approach and the methods I wrote about in my previous article, minimizes risk. Don’t joke with your own capital; set a daily target for yourself. Once you reach the target, take profits promptly, and trading contracts will become very simple. Those who have dealt with long contracts know that if you have 5000U as capital, making 50-100U daily is quite simple. Adding some methods makes it even easier. If you profit 50-100U in a day, how much is that in a month? 1500-3000U! Of course, in actual operations, you might encounter significant market fluctuations or unexpected events. If we average it out, in a month with 30 days, as long as you achieve your daily target for 20 days, you’re still in profit. Having said so much, I hope this can help crypto friends.

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