Position by position or full position? High multiple or low multiple? Arbitrage? Hedging? What is position management?

Many of my friends are confused about trading. In addition to their lack of understanding of the technical, macro and news aspects, they are also confused by various operating methods. What I will talk about below may be common sense knowledge for some mature traders (old leeks who have lost money), but there are still many people who don’t understand. I will talk about it briefly first and then update it from time to time.

About the contract position mode:

On most platforms, the contract position mode is divided into two types: full position and position by position. Here we assume that an account has 10,000u. In the full position mode, even if the account only has an order of 100u, once a liquidation occurs, all the funds in the account, i.e. 10,000u, will be reset to zero; while in the position by position mode, when a liquidation occurs, only the funds occupied by this order, i.e. 100u, will be reset to zero.

Then let’s just play position-by-position from now on!

Wait a minute! There are two situations. If you are a 100x rusher, I still recommend you to use full position, but I definitely do not recommend high leverage all-in. If you are a low-leverage coward (like me), then position by position is completely sufficient.

Here we need to extend to another thing - leverage ratio: Under high leverage, in addition to the magnification of returns, the risk is also pulled up linearly. The position in the position-by-position mode can only lose up to 100% (due to the protection mechanism of the exchange, it may explode at -99.n%). If it is a 100-fold leveraged position-by-position, as long as the price moves in the opposite direction of our order by more than 1%, the position will be exploded. In the case of such a small tolerance rate, "the price has not changed, but the position is gone." For the full position, as long as the position is controlled well, the tolerance rate will be relatively good, but the premise is that there must be a stop loss, otherwise the account assets will be reduced to zero if it explodes.

I know that some friends are just stubborn and say, “qtmd stop loss, I’ll just cash out!” But stop loss is a big prerequisite for trading. Trading without stop loss is like running naked in a busy city. There will always be a day when you will be “caught”.

Stop loss can be roughly divided into three types: time stop loss, space stop loss and fixed stop loss. Using the position-by-position mode is actually the scope of fixed stop loss. Since stop loss belongs to the technical content, here we only talk about some basic operating knowledge. If you are interested, I will talk about it another day.

Next, let’s talk about position management, which is closely related to leverage and is often mentioned by traders: The leverage ratio does not fully reflect the risk exposure of the account. A 5% position under 100x leverage and a 100% position under 5x leverage actually have the same 5x net leverage ratio, so when you see someone open a 125x or even 1000x leverage, don’t rush to say that he is a gambler, maybe he only opened a 1% position.

Therefore, for risk management, the leverage of a single position is not important. The key is to control the net leverage of the total position. This is why traders always say "position management" rather than "leverage management."

The specific net leverage that needs to be controlled depends on personal risk preference and capital size. At present, the default net leverage rate that everyone can accept is about 5x, which means 5x full position. Personally, I usually use about 3x-5x, and I only use 10x net leverage when I am extremely confident. In short, large funds have low leverage, and small funds have high leverage. You can decide according to your own situation.

That’s all for today. Next time, I will talk about the operation concepts of long and short positions, arbitrage and hedging, or if you have anything you want to know, you can leave a message and we will talk next time.