Although contract trading offers flexible trading opportunities, it also comes with certain risks. Investors need to fully understand them and operate cautiously.
Disadvantages
1. High Risk
Contract trading allows the use of leverage, which amplifies losses as well as gains.
Cryptocurrency markets are highly volatile, and prices may fluctuate significantly in a short time, potentially causing rapid losses, even losing the entire margin.
Investors are advised to assess their risk tolerance before trading and manage position sizes and leverage appropriately.
2. Requires Certain Expertise
Contract trading is more complex than spot trading and requires understanding of opening positions, closing positions, leverage, stop loss, and take profit rules.
Investors also need certain market analysis and technical analysis skills to make effective trading decisions.
Beginners are advised to study and practice with simulated trading before engaging in real trading.
3. Liquidation Risk
When investors use leverage and the margin is insufficient to maintain the position, the trading platform may automatically liquidate the position.
Liquidation may lead to unexpected losses, so controlling position size and margin management is crucial.
4. Funding Rate / Cost
Especially in perpetual contracts, holding a position may require paying or receiving funding rates.
Long-term positions may incur additional costs or earnings due to funding rates, which should be considered in overall profit calculations.
Summary
Contract trading offers clear advantages (high leverage, flexible long & short strategies, risk hedging), but it also comes with challenges such as high risk, expertise requirements, liquidation, and funding costs. Investors need to fully understand the rules, operate cautiously, and combine stop loss/take profit and position management to control risk.