1x contract and spot trading: essential differences and potential risks

Although the 1x contract has similar margin requirements to spot trading, that is, investors need to pay a margin equal to the spot price, there are significant differences in the nature of the transaction, fee structure, and risk management.

First of all, 1x contract is not the same as spot trading. Although the leverage ratio is 1, which means that there is no amplification of the profit and loss effect, the essence of contract trading is derivatives trading. Although its price changes are related to the spot market, it is affected by more market factors, such as market sentiment, capital flows, etc.

Secondly, the misunderstanding that “1x leverage means your position will not be liquidated” needs to be clarified. In contract trading, traders need to face potential liquidation risks regardless of the leverage ratio. This is because, in addition to transaction fees, there is also an important fee - the funding rate, which is regularly deducted from the margin based on the difference between the contract and spot prices. If the margin is not replenished in time, even under 1x leverage, the accumulation of funding rates may result in insufficient funds in the account to maintain the position, thus triggering a liquidation.

Furthermore, the funding rate is designed to maintain a certain linkage between contract prices and spot prices to ensure market fairness and efficiency. When the contract price is higher than the spot price, investors holding long positions need to pay funding fees to investors holding short positions, and vice versa. This mechanism helps prevent excessive deviations in the market and maintain market stability.

Finally, whether it is contract trading or spot trading, price changes follow the basic laws of supply and demand: increased buying drives up prices, and increased selling leads to falling prices. Therefore, when trading, investors should fully understand market dynamics, rationally analyze price trends, and take corresponding risk management measures to deal with potential market risks. #比特币行情 #比特币大会 #美国PCE通胀放缓 #美联储何时降息？ #美国以太坊现货ETF开始交易 $BTC $ETH