“Spot Trading is for poor people and Future Trading is for rich people”, the best joke I heard till now.
People saying the opposite. Leverage (a.k.a Loan-Contract-By-Broker) for rich people to multiply their gain with very less money.
For example, suppose I have 500 million to invest. But I invested 5 million in the market and remaining I kept somewhere safe. Suppose I placed a long (buy) order on BTC when market was at 70k USD. So I should have 14.29 BTC approximately. But I used 100x leverage, so I have 1429 BTC. Then it went to 71k and technically I suppose to make 1k for each BTC. So, I made more than 1 429 000 in profit with only 5 million. If you get almost 1.5 million with 5 million in a short period,,, it’s not bad right?
Now let’s say, BTC went down to 69.5k, I lost 500$ for each BTC. So I lost 1429*500, that means more than 0.715 million. So I still have something like 4.285 million left. Nothing to worry, right?
What if it goes to 63k? I’m losing 7k for each BTC, which is total 103 million. Now, for most retail traders, you will get margin call a lot earlier and broker / platform will keep closing out all your orders and you may lose all your deposited money or at least 50% (if they close on -50% P/L).
For institutional traders or professional classified traders, broker will call, “Sir, you have negative balance in your account, please deposit 98 million or more.” Then they’ll say, “ No worries, I’m putting 495 million more to increase margin.” Either they can deposit or wait 1 month to get negative balance positive (as BTC price increases), as most brokers gives 1 month time.
Now, say, is Future / Leveraged Trading for poor people or rich people?
Poor people, let’s say he has only 10k and he will make a order with 100x leverage and eventually lose all his money on Margin Call. (For poor people, it’s not actual call or warning, so I would say Margin Trigger)
Man! Trade with your money on spot if you don’t have much. Leveraged trading, the way you use it, is clear gambling. Either make some or lose all!