Terminology · Lesson 2 · Beginner
Futures and Leverage
You know the terms around leveraged futures, from leverage through margin to liquidation.
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What it is about
You need these terms before you even look at a leveraged position. Flip the cards, then test yourself.
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The key points at a glance
- The core terms of leveraged futures will stick after this deck.
- Leverage, margin, and liquidation are directly connected.
- You are done once you complete a quiz round without a mistake.
Deep dive
How close is your liquidation? The 1-over-leverage rule
Leverage, margin, and liquidation are a single calculation. The percentage distance to liquidation is roughly 1 divided by your leverage. The maintenance margin actually pushes that point a little closer to your entry.
- 10x: liquidation around 10 percent against you.
- 25x: only about 4 percent left.
- 50x: a normal wick is already enough, about 2 percent.
- Long 100 at 10x liquidates at about 90.5.
- Place the stop behind a valid level, never at the liquidation price.
Why a 5 percent move can be a 50 percent loss
The most dangerous fallacy: that an X percent price move equals an X percent loss. At 10x a 5 percent move against you is a 50 percent loss on your margin. A future is not linear, the closer the liquidation, the more brutally the loss profile bends.
- Core rule: cap losses hard with a stop, leave gains open.
- Liquidation cascade: forced selling triggers the next stops.
- Isolated margin: only the assigned margin is at risk.
- Cross margin cushions longer, but can hit the whole account.
Funding rate as the sentiment cheat code of perpetuals
A perpetual has no expiry date, so the funding rate ties its price to the spot, a payment typically every 8 hours directly between longs and shorts. For positions you hold, funding is an ongoing cost that gets expensive in ranges.
- Positive funding: longs pay shorts, a bullish signal.
- Negative funding: shorts pay longs, a bearish signal.
- Early 2021 over 100 percent per year: mania near the top.
- Summer 2021 around 60 percent to go long: panic near the bottom.
- Never in isolation, always with trend and support-resistance.
Sources: Goodman, Elder, Murphy
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