In the history of the currency circle, there was a time when 1,000x leverage was launched, mainly in the form of USDT contracts. However, this highly leveraged product did not last long and was quickly removed from the exchange. This prompted people to think deeply about whether high leverage is reasonable.
First, let’s not discuss whether investors can make money with high leverage. Leverage of 1,000 times is not just an amplification of principal, profits and losses are calculated at 1,000 times. But what is even more worrying is that many people may ignore the high handling fees of exchanges, and these handling fees are calculated based on the amplified principal.
For example, if you have 1,000 yuan and open 1,000 times leverage, your principal will become 1 million. In this case, even if the currency you bought really increased 1,000 times before the liquidation, you can still successfully close the position if you sell the goods at 1,000 times the price. Yes, you can indeed withdraw a trillion.
But here comes the problem, there are potential problems. First of all, it is impossible for mainstream currencies such as Bitcoin to increase by a thousand times, at least not in the foreseeable future. Considering the size of global GDP, it is likely that what you are buying is not Bitcoin.
If you buy an altcoin with a lower market value, because its market value is smaller, if you enter a 1,000 times buy order of 1 million, it is equivalent to injecting 1 billion in funds. This will cause the price of small currencies to be pushed up to 100,000 times or even more in one day. Your average purchase price may be 10,000 times the starting price. In this case, a price of 10,000 times and another 1,000 times would bring the price to 10 million times. Even if it really rises to 10 million times the price before you bought it, and never fell, causing you to liquidate your position, you now need to perform arbitrage to close the position. Your 1 trillion sell order must have enough funds to take over the order in order to successfully complete the closing. position and obtain net profit.
The crux of the matter is, where do you find a trillion dollar purchase order that is willing to take over?
Not to mention that large funds will not provide particularly high-leverage products in small currency markets, because this cannot carry out effective risk control. People who are familiar with cryptocurrency futures trading should know that there is a mechanism called maintenance margin. The larger the amount of funds, the higher the maintenance margin. This is to prevent the risk of liquidation caused by insufficient liquidity.
When the account funds are insufficient, forced liquidation will clear the position. When there are too many funds, the counterparty may be unable to pay and will be forced to close the position to achieve profits. For example, if you buy 1 long position for 1 yuan and there are only 10 counterparties, then if the price rises 10 times, you will be liquidated at a profit.
Therefore, even if the risk rules of different platforms are different, the principles are the same. This also explains why 1000x leverage products were quickly removed from the shelves in the currency circle.
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