There are several important reasons why novice cryptocurrency traders are not recommended to engage in contract trading (also often called futures trading):
### 1. High complexity
- Leverage and Margin: Contract trading involves the use of leverage, which means you can control a larger trading volume with less capital. While this can bring high returns, the risks are also multiplied. New traders may not understand how leverage can quickly magnify losses.
- Multiple contract types: There are different contract types such as perpetual contracts and delivery contracts, each with different mechanisms and risks. Newbies may find it difficult to understand these complex financial products.
### 2. High risk
- Risk of liquidation: If the market price fluctuates in the opposite direction, the contract trader may face liquidation, that is, the initial margin cannot maintain the contract position, resulting in the account balance being cleared.
- Market volatility: The cryptocurrency market itself is very volatile, and contract trading further amplifies this volatility.
### 3. Psychological pressure
- Quick decision-making: The fast pace of the contract market requires traders to be able to make decisions quickly. New traders may lack the experience and psychological preparation to deal with sudden changes in the market.
- Emotional management: Facing the potential for huge losses, managing emotions is a key skill. New traders are often easily swayed by market sentiment and make irrational trading decisions.
### 4. Fund Management
- Capital requirements: Contract trading usually requires a certain amount of capital to maintain margin, and losses can occur quickly, which may quickly deplete the funds of a novice.
- Money Management Strategies: Effective money management and risk control strategies are the key to successful trading, but these strategies require experience and practice to hone.
### 5. Learning Curve
- Knowledge accumulation: Contract trading requires a certain understanding of market analysis, technical analysis, and some basic economics knowledge. Newbies usually lack this knowledge.
- Tool Usage: Contract trading often involves the use of complex trading tools and platforms, and the effective use of these tools requires time and learning.
### 6. Market manipulation
- Smaller market: The cryptocurrency market is smaller than the traditional financial market and is easily influenced or manipulated by large traders, especially the contract market.
### suggestion
- Learn the basics: Start by understanding the basics of blockchain technology and cryptocurrency, and learn market analysis, fundamental analysis, technical analysis, etc.
- Practice demo trading: Many exchanges offer a demo trading environment where new traders can practice trading strategies without worrying about losing real money.
- Small spot trading: Start with spot trading, which is buying and selling cryptocurrencies directly. This method is low-risk and suitable for novices to accumulate experience.
- Risk Management: Even for spot trading, you need to learn how to set stop loss and take profit and manage position size.
Although contract trading provides the possibility of quick profit and hedging, its complexity, risk and psychological pressure make it unsuitable as a choice for beginners. After steadily learning and practicing spot trading and accumulating experience, consider whether you need to get involved in contract trading.