Will there be less profit from automatic position reduction on perpetual contracts?

Perpetual contracts, as a popular cryptocurrency trading tool, have attracted more and more investors to participate. It is a contract with no fixed expiration date that allows investors to trade with leverage. In perpetual contracts, automatic position reduction is a risk management mechanism designed to prevent investor accounts from being liquidated due to price fluctuations. For investors, it is crucial to understand the automatic reduction mechanism of the perpetual contract. In particular, it is necessary to understand whether the automatic reduction of the perpetual contract will result in less profit? Regarding this issue, based on current market data analysis, the automatic lightening mechanism may affect trading returns. The editor below will tell you in detail.

Will there be less profit from automatic position reduction on the perpetual contract?

Automatic lightening of perpetual contracts may affect trading returns. The automatic lightening mechanism is a measure taken by the exchange to maintain market stability and fair trading under certain extreme market conditions.

Automatic position reduction is usually triggered when there are extreme market fluctuations, insufficient market liquidity, or large-scale liquidation events. When the market cannot hedge risks by closing positions, the automatic deleveraging mechanism will automatically reduce positions in highly leveraged positions. The exchange will reduce positions according to a specific priority order, usually starting with the positions with the highest leverage. The order of position reduction depends on the trader's profit level and leverage usage. Positions with high profits and high leverage are more likely to be reduced.

When your position is automatically reduced, you may be forced to close part of the profitable position, which means that the total profit you may have obtained will be reduced because part of the position was closed early. Auto-deleveraging may result in additional transaction costs, including closing fees and re-opening fees, which will further reduce your net profit. Auto-deleveraging may disrupt your trading plans and strategies because you cannot fully control when and at what price you will close your position, and this uncertainty will affect your overall trading returns.

How to control the perpetual contract position?

When trading cryptocurrency perpetual contracts, position control is a key step to manage risk and achieve stable profits. The following are 7 ways to effectively manage your positions summarized by the editor:

1. Determine the risk ratio of the total funds:

In each transaction, only risk a small part of the total funds. It is usually recommended not to exceed the total funds. 1-2% of funds. This means that even if a trade fails, your total capital will not be affected too much.

2. Use stop loss orders:

Set stop loss orders when opening a position to limit potential losses. The stop loss price should be set at a technical support or resistance level to ensure that the position is automatically closed when the market moves in the opposite direction.

3. Control the leverage ratio:

Although leverage can amplify returns, it can also amplify risks. Novice traders should use low leverage (such as 2-5x), while experienced traders can use slightly higher leverage, but more than 10x is generally not recommended.

4. Fund management strategy:

The initial position is small. As the market trend is confirmed, the position can be gradually increased. This approach reduces risk while increasing profits when the trend becomes clear. Divide the total position into several parts and enter the market in batches. This strategy helps achieve better average entry prices in volatile markets.

5. Technical analysis and market research:

Use technical analysis tools (such as moving averages, MACD, RSI, etc.) to determine market trends and entry points. Combined with technical analysis, develop a clear trading plan and exit strategy. Pay attention to market sentiment indicators and news events to understand the overall market sentiment and potential risks.

6. Regularly review and adjust strategies:

Record the details of each transaction, including entry and exit prices, position size, stop loss and take profit positions. Review these records regularly to identify patterns of success and failure and optimize trading strategies. Regularly adjust and optimize fund management strategies and position control methods based on market changes and your own trading experience.

7. Avoid emotional trading:

Strictly adhere to the predetermined trading plan and position control strategy, and avoid making impulsive decisions due to emotional fluctuations. When encountering severe market fluctuations, stay calm, avoid emotional operations, and rationally evaluate market conditions and position management strategies.

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