What Is the Main Risk When Trading Cryptocurrency Futures Contracts?
The main risk is the potential for significant loss due to high leverage and volatility. Futures contracts obligate the trader to buy or sell, meaning losses are not capped at the initial margin.
Rapid, large price swings in the volatile crypto market can lead to immediate margin calls and forced liquidation, potentially wiping out the entire trading capital quickly.
Glossar
Trading Capital
Allocation ⎊ Trading capital, within cryptocurrency, options, and derivatives, represents the earmarked funds dedicated to executing specific trading strategies, fundamentally dictating position sizing and risk exposure.
Margin Calls
Trigger ⎊ Margin calls represent a demand from a brokerage or exchange for an investor to deposit additional funds or collateral to bring the account back to the required maintenance margin level, particularly relevant in leveraged cryptocurrency trading and derivatives markets.
Price Swings
Volatility ⎊ Price swings, within cryptocurrency markets, options trading, and financial derivatives, represent abrupt and substantial fluctuations in asset prices.
Cryptocurrency Futures
Leverage ⎊ Cryptocurrency futures contracts represent agreements to buy or sell a specified quantity of a cryptocurrency at a predetermined price on a future date, functioning as a derivative instrument.
High Leverage
Amplification ⎊ High leverage, within cryptocurrency and derivatives markets, fundamentally alters risk-reward profiles by enabling a smaller capital outlay to control a larger notional exposure.