In futures contract trading, the concept of leverage plays a vital role. It can not only help investors maximize their profits, but also comes with huge risks. This article will explore the meaning of leverage in futures trading and how to use leverage to make lucrative profits, and guide readers to have a deep understanding and master the skills of using this powerful tool.

What is leverage? 

Leverage, as the name suggests, is a financial operation method that uses external funds to increase the scale of investment in investment. In futures contract trading, leverage allows investors to control contracts of greater value with less funds, thereby amplifying the potential for profit and loss. For example, if an investor has $1,000 in funds, with a leverage ratio of 10 times, he can control a futures contract worth $10,000. This means that the investor only needs to take a risk of $1,000, but may gain $10,000.

How to use leverage to make a profit? 

In order to skillfully use leverage in futures trading to make lucrative profits, investors need to have certain skills and strategies. First of all, it is crucial to understand market trends. Through technical analysis and fundamental analysis, grasp the market trend and choose varieties with potential growth space for trading. Secondly, set reasonable stop loss and take profit points. Reasonable stop loss can help investors control risks and avoid large losses; while setting take profit can lock in profits in time and avoid greed leading to profit loss. In addition, strict implementation of trading plans is also the key to the successful use of leverage. Follow the trading plan, don't be swayed by emotions, stay calm and rational, and you can make steady profits in a volatile market.

Actual case:

Xiao Ming is an investor who is keen on futures trading. Recently, he decided to use leverage to increase his profit level. After sufficient market analysis, Xiao Ming found that gold futures are expected to rise, so he chose gold futures contracts for trading. Since the leverage ratio is 20 times, Xiao Ming only needs to invest $1,000 as a margin to control a gold futures contract worth $20,000. When the market trend is in line with expectations, Xiao Ming successfully earned $5,000 in profits. This is due to his strict implementation of stop loss and take profit strategies in trading, and the steady and successful use of leverage as a weapon.

Conclusion:

Leverage is both a weapon and a double-edged sword in futures contract trading. Correctly understanding and using leverage can help investors maximize their profits, but it also comes with huge risks. Only through in-depth study and continuous practice can we make good use of leverage in futures trading and win huge profits. I hope that the content of this article can provide some inspiration and help for investors, and guide them to use leverage in futures trading to achieve better investment returns. I hope that every investor can overcome difficulties in the futures market and reap a lot of wealth.

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Leverage is a common financial instrument, which means that assets are magnified for investment through a margin system.

With leverage, risks and returns are magnified simultaneously, because the profit and loss of investors after using leverage is not calculated based on the size of the margin invested, but on the amount of funds after magnification.

For example, when the price of BTC is $5,000 per coin, Xiao Ming uses 1 BTC as margin and 10x leverage to obtain a contract worth 10 BTC (i.e. 500 contracts, with a contract value of $100 per contract).

If the price of BTC rises by 1%, from $5,000 per coin to $5,050 per coin, the profit of this contract is 0.099 BTC.

Xiao Ming uses 10x leverage and earns $500 in the contract market with $5,000.

If it is 1x leverage, Xiao Ming also uses 1 BTC as margin and obtains a contract worth 1
BTC (i.e. 50 contracts, with a contract value of $100/contract). When BTC rises to $5050/coin, Xiao Ming's profit is 0.0099 BTC (i.e. $50).

Comparing the use of 10x leverage and 1x leverage, Xiao Ming's actual income is 10 times different.

It should be noted that with leverage, the income doubles and the loss also doubles. Through the margin system, investors can use a small amount of capital cost to complete large transactions.

High leverage contract winning skills

Contract trading is an ultra-high-risk investment behavior. Due to the existence of leverage and liquidation mechanism, while amplifying the wealth effect, it will also accelerate the speed and degree of wealth loss.

For different groups of people, the methods and strategies of contract trading are different. At present, the more mainstream contract trading groups can be divided into hedging and high-risk speculation. 

Depending on the difference in expected returns, risk preferences, and transaction purposes, the methods and approaches adopted are also different, and the investment strategies that should be adopted are also different. 

1. Hedging

For those who hold spot goods, in order to hedge the risk of spot price decline, in the contract market, short contracts with the same position, if the buyer, in order to lock in costs and prevent a sharp price increase from causing an increase in the purchase cost, can be achieved through call contracts.

For this kind of operation, whether the price rises or falls, the property will not be lost or increased, but because the leverage of the currency market is generally high and the volatility is particularly large, certain strategies must be matched in hedging transactions to prevent the occurrence of "same price, position gone", that is, the liquidation price needs to be controlled outside the reasonable fluctuation range (this can be achieved by adjusting the margin or placing a limit order near the liquidation price).

Second, high-risk speculation

Mainly includes the following key points:

Key point 1: Win rate and profit and loss ratio

Win rate and profit and loss ratio are the two key factors that determine the final profit situation. In order to achieve profitability, usually only by continuously improving the winning rate of transactions or continuously expanding the profit and loss ratio.

Win rate is the ratio of the number of transactions that achieve profitable transactions in a period of time to the total number of transactions; and the profit and loss ratio is the ratio obtained by dividing the average profit points of profitable orders by the average loss points of loss orders in a period of time.

For example, if each transaction makes a profit of 30%, but the stop loss margin is 10%, then the profit and loss ratio is 3. The popular explanation is that for every 3 yuan earned, you have to pay a loss of 1 yuan.

Usually, the higher the profit and loss ratio, the lower the corresponding winning rate will be, and vice versa. So which one is more important, the profit and loss ratio or the winning rate? I believe
Many senior investors understand that a high winning rate does not mean a steady profit, and improving the profit and loss ratio is the key to winning. 

First, let's do some calculations with a profit-loss ratio of 3:1:

Stop loss 3 yuan x 7 times = 21 yuan; stop profit 9 yuan x 3 times = 27 yuan; profit 27-21 = 6 yuan

Stop loss 5 yuan x 7 times = 35 yuan; stop profit 15 yuan x 3 times = 45 yuan; profit 45-35 = 10 yuan

That is to say, when the profit-loss ratio is 3, you only need to achieve a 30% win rate to make a profit.

The realization of the profit-loss ratio is closely related to the stop-profit and stop-loss set in the transaction. It is usually determined based on some technical indicators, chip distribution, etc., and the corresponding profit-loss ratio is determined based on the winning rate of one's own transaction. The funds in hand are divided into several parts, and the stop-profit and stop-loss positions are set for trading. The rest is to closely monitor market trends and strictly implement established strategies.

Key point 2: Position and trend

In theory, the market is in a volatile market 80% of the time and in a unilateral market 20% of the time.

Then in the 80% of the oscillation time, you only need to implement the above-mentioned winning rate and profit and loss ratio strategies, and in the remaining 20% of the one-sided market, the most important thing is to judge the trend and control the position.

In this one-sided market, investors need to hold positions, increase their positions appropriately after the trend becomes clear, and wait for profits. 

Before the trend is clear, keep a light position. Once you find yourself going against the trend, you need to decisively stop loss and leave the market or set a stop loss point in advance. 

One thing to note here is that in a bear market, because the margin is spot, the short position must exceed the spot position to achieve profit.