What Is the Risk Associated with High Leverage Commonly Used in Perpetual Swap Trading?
High leverage amplifies both potential profits and potential losses. The primary risk is forced liquidation.
A small adverse price movement in the underlying asset can wipe out a trader's margin and trigger an automatic liquidation by the exchange. This mechanism prevents the trader's balance from falling below zero, but it leads to the total loss of the initial margin.
Glossar
Adverse Price Movement
Exposure ⎊ Adverse price movement within cryptocurrency derivatives represents a deviation from anticipated directional forecasts, impacting portfolio valuations and risk parameters.
Isolated Margin
Leverage ⎊ Isolated margin represents a risk management protocol within cryptocurrency derivatives exchanges, enabling traders to allocate specific capital for margin requirements on a per-contract basis.
Underlying Asset
Foundation ⎊ The concept of an Underlying Asset, within cryptocurrency derivatives and financial markets, establishes the core reference point for valuation and risk transfer.
Cross Margin
Leverage ⎊ Cross margin, within cryptocurrency derivatives and options trading, fundamentally involves utilizing a single margin pool to collateralize positions across multiple instruments.
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.