Futures Leverage, Margin, Liquidation, and Stop-Loss Risk
Summary
This lesson contrasts spot trading, where profit generally depends on prices rising after purchase, with futures contracts, which allow traders to open and close positions and use leverage. It explains that leverage reduces the margin needed for a position while increasing the risk that adverse price movement will exhaust that margin. Isolated margin is presented as a way to limit the funds exposed to a position, and stop losses placed before liquidation are recommended as a risk control.
The discussion introduces mark price versus market price, maintenance margin, and periodic funding payments intended to keep perpetual contract prices near spot. It works through an example relating entry price, position size, margin, and liquidation costs. The arithmetic and explanations are informal and contain potentially inconsistent figures, so they should not be treated as a complete liquidation formula or venue-specific guidance. No backtest or systematic performance evidence is provided.
Key ideas
- Spot trading generally requires buying before selling, while futures allow positions to be opened and closed.
- Leverage lowers the margin committed to a position but makes liquidation more likely after adverse price moves.
- Maintenance margin and liquidation charges affect how much loss a position can sustain.
- Funding payments are described as a mechanism for aligning perpetual contract prices with spot prices.
- The lesson recommends stop losses and isolated margin, but its example calculations need independent verification.
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- Strategies ADA Hedged Funding Carry at Binance's Interest-Rate Floor: Long ADAUSDT Spot + Short ADAUSDT USD-M Perp While the Trailing 3-Day Mean Funding Is >= 0.01%/8h, Flat When It Turns Negative (1H bars, delta-neutral, ~50% time-in-market)
- Hypotheses ADA Hedged Funding Carry at Binance's Interest-Rate Floor: Long ADAUSDT Spot + Short ADAUSDT USD-M Perp While the Trailing 3-Day Mean Funding Is >= 0.01%/8h, Flat When It Turns Negative (1H bars, delta-neutral, ~50% time-in-market)
From a private course collection; the original is not published.