Attention friends who are new to contract trading. If you plan to trade futures or perpetual contracts on a major exchange, never go all-in right away. You must first thoroughly understand the concepts of leverage and liquidation. These two things may seem simple, but in reality, they can make you rich overnight or wipe out your entire capital in an instant.

I have been trading for many years, mentoring numerous students, and I have seen too many beginners lose everything because they lack understanding of these mechanisms. So today, I want to share my experiences and lessons learned, using real examples to demonstrate, so you can avoid detours.

Let's start with leverage. Simply put, leverage is borrowing money from the platform to amplify your trading position. In the spot market, if you use 1000U to buy BTC, your profit is only from the increase in BTC's price. But in the contract market, it's different. You can use leverage tools, such as 10x leverage, which means you only need to put in 100U to control a 1000U position. From another perspective, if the market rises by 10%, your 100U principal doubles; if it falls by 10%, your principal is gone.

Why is this so crazy? Because leverage amplifies all fluctuations. Small movements in the spot market might go unnoticed, but under leverage, just a 1% move in the market can cause your account to experience gains or losses several times larger.

I have a student who used a 20x long position during the BTC flash crash in 2024. As a result, BTC dropped 5%, and he thought it was just a small correction. But unexpectedly, he lost everything. Later, he told me that his heart almost stopped at that moment, and he never imagined that leverage could magnify a seemingly minor mistake infinitely.

So, all beginners must remember: leverage is a double-edged sword. If used properly, it’s a rocket; if misused, it’s a bomb.