Risk warning: For better security, it is suggested that newbies control the leverage within 5x and set “Take Profit & Stop Loss”.
Futures are a financial instrument that use leverage to magnify profit. The principal you invest serves as the margin for trading. When running out of margin, there will be liquidation. Besides, with higher leverage, even small price fluctuations will be more likely to bring losses or lead to liquidation.
Therefore, it is of vital importance to manage the position risk. Following are 3 ways to control the position risks and help lead your way through the trouble!
When will the position bear high risks?
First, we need to know when the position will bear high risks:
- When the mark price is close to the liquidation price.
- When the profit rate is negative.
- When you receive the liquidation alert sent by the system.
To control risks, you can simply increase the margin and lower the leverage to avoid the mark price reaching the liquidation price and therefore reduce the margin loss. When the market reverses, you can even turn the loss to profit!
How to control position risk?
Generally, there are 3 ways to control the position risk: 1) increase margin, 2) reduce or close positions, and 3) set take profit and stop loss. Let’s take the KuCoin App as an example in below:
1) Increase margin
Manually increase margin
Click the icon in the “Positions” panel to increase the margin.
After increasing the margin, the position principal is now increased, and the liquidation price will be dynamically adjusted by the system based on the position size and the increased margin.
Click the button in the “Positions” panel to enable the “Auto-Deposit Margin” function.
If the function is enabled, when the liquidation is about to occur, the system will automatically increase the margin from your available balance in your Futures account to avoid the liquidation.
Please note that after enabling “Auto-Deposit Margin”, if the position keeps bearing losses, you may be exposed to the risk of losing more funds than the current margin.
2) Reduce or close positions
You can retrieve an amount of principal to avoid greater losses by reducing or closing positions when the market turns against you.
For positions with high risks, you can choose “Limit” or “Market” to close part of or all the positions in the “Positions” panel to retrieve the principal, therefore reducing the possible losses of the position.
3) Set take profit and stop loss
Click “Take Profit & Stop Loss” in the “Positions” panel, and set the “Take Profit” and “Stop Loss” price to better manage risks and avoid greater losses.