Bitcoin contracts have become a popular choice for investors amid the growing interest in Bitcoin investments. Many traders are drawn to contract trading, believing it's the best way to make significant profits. However, the reality often involves repeated losses. Let's first explain what Bitcoin contracts are.
Simply put, Bitcoin contracts allow trading without owning Bitcoin. Investors profit by predicting price trends and hedging risks, choosing between going long (buying) or going short (selling). Now, why do Bitcoin contracts frequently result in losses? Let’s dive deeper.
Common Reasons for Losing Money in Bitcoin Contracts
1. Lack of Risk Management
Investing always carries risks, and there are no guarantees. Setting strict stop-loss orders is crucial. However, many traders refuse to cut losses, clinging to the hope that the market will rebound. The harsh truth? The market shows no mercy. Preserving capital after a wrong decision is vital.
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2. Emotional Locking and Unlocking
Locking positions is a double-edged sword:
- Unlocking and relocking repeatedly leads to frustration.
- Fear prevents closing losing positions (e.g., holding shorts during a drop or longs during a rally).
- Locked positions cause not just financial loss but also immense psychological stress.
3. Leverage and Volatility
Many enter contract trading after losing spot investments, hoping to recover losses quickly. However:
- High leverage (e.g., 20x) means a 5% price swing can liquidate your position.
- Even correct predictions may result in losses due to extreme volatility.
- Contract trading is risky and often a "no-return" path—exit early if possible.
Bitcoin Contract Trading Rules
1. Trading Hours
- Contracts trade 24/7, except during weekly settlements (Friday 16:00 UTC+8).
- In the last 10 minutes before delivery, only closing orders are allowed.
2. Order Types
| Action | Description |
|---|---|
| Buy Open Long | Bullish bet: Open a long position to profit from price increases. |
| Sell Close Long | Exit a long position by selling the contract. |
| Sell Open Short | Bearish bet: Open a short position to profit from price drops. |
| Buy Close Short | Exit a short position by buying back the contract. |
3. Order Methods
- Limit Order: Specify price and quantity (for opening/closing positions).
- Market Order: Execute immediately at the best available price.
4. Position Limits
- Max 6 positions per account (e.g., weekly/quarterly long/short).
- Exchanges impose caps on single-order sizes to prevent market manipulation.
5. Liquidation Risks
- Overleveraged positions face auto-liquidation if collateral falls below maintenance margins.
Key Takeaways
- Bitcoin contracts are high-risk, high-reward instruments requiring expertise.
- Avoid emotional trading and enforce strict stop-loss discipline.
- Newcomers should prioritize spot trading before venturing into contracts.
FAQs
1. Can Bitcoin contracts guarantee profits?
No. Volatility and leverage amplify both gains and losses.
2. What’s the safest way to trade contracts?
Use low leverage (≤5x), diversify, and set stop-loss orders.
3. Why do positions liquidate even with correct predictions?
Slippage, fees, or sudden price spikes can trigger liquidation before hitting targets.
4. Is contract trading suitable for beginners?
No. Start with spot trading to understand market dynamics first.
5. How do I recover from losses?
Rebalance your portfolio, reduce leverage, and avoid revenge trading.
6. What’s the biggest mistake in contract trading?
Overconfidence—always respect market risks.
Final Note: Bitcoin contracts demand skill and discipline. If unprepared, focus on foundational investments instead. Patience and learning pave the way to sustainable success.