In this article we’ll be covering everything you need to know about managing risk when trading perps and the tools that Phantom provides you with to stay safe in a pinch.
Understanding leverage
Leverage is a way to amplify trades. Traders amplify their position(s) with leverage to multiply their potential profit. With 5x leverage for example, a 10% move in price suddenly translates to a 50% gain or loss. It works both ways—and that’s what makes perps risky.
If you open a $500 position on ETH using $100 margin:
- A 10% price increase means a $50 gain.
- A 20% drop wipes out your $100 margin (A.K.A. liquidation).
Your position will be automatically closed in the event of a liquidation. You can always see your liquidation price before confirming (and even during) a trade.
Managing risk the smart way
Regardless of how many resources we provide you, you will never be able to eliminate risk from trading. With that being said—we’ve compiled a list of best practices that experienced traders swear by:
- Start small: The lower the leverage, the more time to react and vice versa.
- Use stop loss and take profit: Volatility translates to emotion. Phantom’s Auto Close feature will help you stick to your plan, not your feelings. Note: Stop loss orders are not guaranteed and may not execute during volatile market conditions.
- Trade within your limits: You should only risk what you’re willing to comfortably lose. Trading perps involves significant risk of financial loss and may not be suitable for everyone.
An example of leverage in the wild:
Say you go long on ETH with $100 margin at 5x leverage. If ETH climbs 10%, your position grows 50%. If it falls 20%, your entire $100 margin is lost and your position is automatically liquidated.
But, if you set a stop loss for your position to automatically close only if ETH falls 10%, then you’ll be left with half of your margin, instead of none.
Important: Stop loss orders are not guaranteed to execute at your specified price. During volatile market conditions, your position may close at a worse price than expected, resulting in greater losses than anticipated, including the potential for a total loss of your investment.
Auto Close in action:
- Tap Auto Close.
- Choose a price or percentage to exit.
- You’re all set.
Phantom Perps also provides real-time tracking, so you can see your liquidation price, margin ratio, and unrealized PnL in the blink of an eye, whenever you need.
Looking forward
Phantom Perps provides fast execution and position management tools to support your trading.
Managing risk means preparing for every and any outcome. Every tool, from liquidation tracking to stop loss automation is a way to implement your trading strategy to minimize risk.
Read more about Phantom Perps here:
Note: Phantom Perps are not available in all jurisdictions. This post is not intended for UK audiences. Trading perpetual contracts involves significant risk of financial loss and is not suitable for all users. Read more about perpetual futures on Phantom here. This content is for informational purposes only and not investment advice.
