Let me explain to you why high leverage is prone to collapse!
The leverage mentioned here does not refer to your leverage multiple, but the total warehouse leverage.
For example, for U-based contracts, the leverage multiple is 10, and 10% of the total funds are used as margin to open an order, which is actually 0 leverage.
For spot, the same setting, set to 20 times leverage, 5% of the total funds as margin to open an order, is also the same 0 leverage!
Set to 100 times leverage, use 1% of the total funds as margin to open an order, and it is also 0 leverage.
However, the leverage set by the contract is different from the final total warehouse leverage.
The total warehouse leverage of the contract is already very large at 3-5 times. For example, a 400,000 position is opened with a principal of 100,000, which is a 3 times leverage of the total position.
In actual operation, most people open 10-20 or even 50-125 times, so at this time, almost all the principal is used to open margin orders, which is a very dangerous operation. If you are not careful, you will lose all your money. At this time, the total leverage is 10-125 times. If the market goes in your direction, it is really easy to make money.
Therefore, contracts are risky. Don't go all in, keep a part of it as a chip to recover the principal!
