How to reduce the risk that leverage brings in contract trading?
As we all know, the contract market is a place where risks and benefits coexist. Many traders saw the huge profits brought to others by the contract market and entered the market in a hurry without fully understanding the rules, only leading to out of the game disastrously.
How many people have seriously considered the rules of the game? What is the maintenance margin rate and how to calculate the liquidation price, this is what a trader must know.
The exchange provides traders with ultra-high leverage. Everyone must use leverage reasonably while chasing benefits. 100 times leverage may make you a great fortune or lose everything. Under certain risk control, if you can understand the rules, you will live longer in the market.
In order to avoid being unable to close positions under extreme circumstances, the platform has set a maintenance margin rate. The platform has also set a funding rate to avoid long-short imbalances. These two points are the key to the transaction.
In the current version of YFX.COM, the funding rate is not set, which has advantages and disadvantages for traders. The advantage is that if the market permits, you can do simple arbitrage operations on the fund rate at YFX.COM. The disadvantage is that in addition to arbitrage, you may not get the benefit of the fund rate.
Knowing the maintenance margin ratio, traders can calculate their closing price and maximum lossable amount. In addition to the maximum lossable amount, the other funds are handling fees and risk funds.
In YFX.COM, the handling fee is the first to be deducted. The platform’s handling fee is preset to 0.1%, which includes 0.05% for opening a position and 0.05% for closing a position. When opening a position of 100USDT and using 10 times leverage, the position margin is roughly 99USDT, and the handling fee is roughly 1USDT.
Without considering the handling fee, assuming that the margin is 100USDT, the maximum lossable amount and the risk fund are as below.
In addition, according to the maintenance margin rate, the liquidation price can be calculated. At this time, you will also find that 10 times, 20 times, 50 times, and 100 times are not fluctuating 10 points, 5 points, 2 points, 1 point, so we have to figure out maintain margin rate and use leverage reasonably to control risks.
When all the rules are clear, you will find that automatic stop-loss before the liquidation will prevent you from losing everything. In addition, before opening a position, we must consider whether it is suitable for opening a position, as well as the stop-loss level and the choice of leverage.
