What Is the Maximum Risk a Trader Takes When Using Leverage?
The maximum risk a trader takes when using leverage in a standard perpetual futures contract is the loss of their entire margin collateral. While leverage magnifies potential losses, the liquidation mechanism is designed to prevent the account balance from becoming negative.
In rare, extremely volatile events, a trader might face a small negative balance, which is typically covered by the exchange's insurance fund.
Glossar
Perpetual Futures
Contract ⎊ Perpetual futures represent a type of financial derivative contract, specifically within the cryptocurrency and options trading space, that replicates the payoff of a traditional futures contract without a fixed expiration date.
Cross Margin
Structure ⎊ Cross Margin is an account configuration where the entire portfolio equity, comprising collateral across all open positions ⎊ futures, options, and spot holdings ⎊ is pooled to serve as a unified margin base to support all positions simultaneously.
Maximum Risk
Exposure ⎊ Maximum risk in cryptocurrency derivatives fundamentally represents the potential for total capital depletion, stemming from leveraged positions and inherent market volatility.