Risk Management

Risk Management

Leveraged trading amplifies both gains and losses. Proper risk management is the difference between growing your portfolio and losing your collateral.

Position Sizing

The 1-2% Rule: Never risk more than 1-2% of your total portfolio on a single trade.

Leverage Selection

Higher leverage = higher risk. Here's a practical guide:

Rule of thumb: If you're not sure, use 2x-3x. You can always add to a winning position.

Stop-Loss Strategies

Fixed percentage stop:

• Set a stop-loss at a fixed % below entry (longs) or above entry (shorts)
• 2x leverage: 10-15% stop = 20-30% max loss on collateral
• 5x leverage: 5-8% stop = 25-40% max loss on collateral

Technical stop:

• Place stops below/above key support/resistance levels
• Below recent swing lows (longs)
• Above recent swing highs (shorts)

Always use a stop-loss. The most common mistake in leveraged trading is holding a losing position hoping it recovers.

Liquidation Awareness

Your position is liquidated when losses approach your collateral value. The higher the leverage, the closer your liquidation price is to your entry.

Approximate liquidation distances:

Actual liquidation depends on interest and fees.

Hedging

Use shorts to hedge your existing holdings:

Scenario: You hold 10 SOL ($1,500) and want to protect against a drop without selling.

Solution: Open a 2x short with 150 USDC (equivalent to ~2 SOL exposure). If SOL drops 10%, your 10 SOL loses ~$150, but your short gains ~$30 — offsetting ~20% of the loss.

Common Mistakes

1. Over-leveraging — Using 10x+ without experience
2. No stop-loss — "It'll come back" is not a strategy
3. Averaging down — Adding to losers amplifies losses
4. Ignoring fees — High-frequency trading with leverage eats returns
5. Revenge trading — Taking bigger risks after a loss to "make it back"
6. Ignoring liquidity — Large positions in thin pools get worse fills