Since the huge success of Hyperliquid this year, we've witnessed the rise and hype of multiple perpetual DEXs. Volumes and fees generated have been insane, and unfortunately, it all got a bit overheated like we saw on Friday the 10th, when the big crash happened and billions were liquidated.
That's the word - 'liquidated'. A word that kept me from exploring leverage trading for quite some time before I first had the courage enough to to try it out. All of us have heard these stories of users getting liquidated, getting totally wiped out, losing all. Perhaps because of this, people have stayed off the leverage (which is usually a wise decision) and continued holding and spot trading.
However, it's not as intimidating as it may first sound. The most important aspect of perps trading is risk management (more on that later), and secondly, leverage should only be used to increase your spot positions. The latter one is my own rule, which I picked up from somewhere along the way, but it's proven to be a solid one. All in all, if you don't have a gambler mindset and know your limits, trading with leverage can be a great tool.
This being said, if you are someone who has just joined the crypto space, I wouldn't recommend jumping straight into perps trading, but instead, would advise you to learn basic concepts such as supply & demand and how to interpret tokenomics. Then just start with spot trading before using leverage.
Basics: Leverage
Not long ago, LeoDex launched its perpetual trading, and I've seen many users asking about a crash course or some advice on how to trade perps. Therefore, I decided to write this short guide, including the basics, risk management, and what to avoid.
First of all, you've probably seen 3x, 5x, or even 20x next to those profit cards people share on social media, but what do they really mean?
Using leverage is like taking a loan from the exchange. Let's say you have $100 on your perp DEX account, $200 on some other exchange which you want to transfer to your perp DEX account. With leverage, you don't have to make that transaction, but instead, you set your leverage to 3x, and now you have that $300 to trade with.
Now, it's important to understand that both wins and losses are now multiplied by 3 and added, or reduced, from your initial deposit($100) as 3x.
Usually, when you have deposited x amount of money into your account, you probably don't want to use all of that on a single trade. Therefore, it's advised to search for an Isolated/Cross button on the interface and toggle it to Isolated. By doing so, only the amount you have chosen to use for a trade is in play and if you hit a stop-loss, the losses only apply to that specific amount.
Stop-Loss & Take-Profit Orders
Here's the risk management part I promised. Planning your trade is very important, and you want to map it out beforehand, analyse the charts and ask yourself these questions:
- Is this a good entry point to open a long position?
- If so, where will it likely face resistance and pull back?
- If it fails, how much am I willing to lose for this trade?
I'm doing my planning on TradingView, but exchanges also have these Long- and Short Position -tools, which we are going to use for our risk management.
These are often found on side or upper tool panels (see the symbols in the pic below).
In the example below, Mantle $MNT has been downtrending for a while, and I'm waiting for it to break above the diagonal trendline, retest it, and move higher from there.
I would then use the Long Position tool and place it where I'm planning to open the trade. Next, I'd adjust the red downsize part and stretch it to where I want the trade to be closed to avoid further losses. The tool now shows that if I set my Stop-Loss (SL) order here, I would lose 11.61%. However, since were are using the 3x leverage in this example, my loss would be 34.83%.
So if I had allocated $10 to this trade with 3x leverage and it had failed, I would have lost $3.48.
The same applies on the upside. I stretched the green part and set it close to where the price had faced resistance earlier, believing it might pull back again. Here's where our Take-Profit (or TP) is set. If the $MNT price were to surge above this level, my position would be closed with 119.13% profit (39.71% x 3), or $11.9 in profit if I had used that $10 for the trade.
Short selling, or shorting, is no different; the tool view is flipped around, and you see your potential gains on the downside and losses on the upside.
Risk/Reward Ratio
When taking a closer look at the Long Position tool (or Short Tool), we can see the Risk/Reward Ratio in the middle of it.
In the $MNT example trade:
- Risk: 11.61%
- Reward: 39.71%
- Risk/Reward = 39.71/11.81
- Risk/Reward Ratio: 3.42, or 1:3.42
R/R over 1:3 is statistically important because even if you win only 50% of trades, you are still profitable. With a 1:3 R/R, you can lose 2 trades and win 1 trade and be profitable.
This obviously requires a lot of patience and being consistent - sticking with the plan, and also letting the trades play out.
This being said, if your trade starts well and you believe the price will keep on going in the right direction, you can make it "a free trade" by adjusting the SL position. If the price has broken a resistance level in a long trade, I sometimes move the SL just below the resistance, which has now (hopefully) turned into a support. This can be done using the edit button or simply dragging the SL order to the desired location on the chart. On the upside of the trade, you can also move the TP if you believe the uptrend continues.
However, the new SL can get easily triggered, and if you are very systematic, this can mess up your system since the R/R doesn't apply anymore if the trade gets closed too early.
Conclusion
The purpose of this post was to share some of the most basic things needed to know when starting to trade perps. Just a scratch on the surface. The rest of it is mostly calculating possibilities and controlling emotions. There is a lot of material about different approaches and strategies online, and if you are interested, drop a comment and I'll share my findings.
No matter which strategy you choose to use, whether it's range trading, trends, or whatever, just stay consistent - follow your plan. Also, take it easy with high leverage, on Friday, many multi-million longs were wiped in seconds. It happens very fast.
Finally, don't revenge trade. Learned this the hard way. Markets are very choppy right now and have been like that for most of the year. Revenge trading, or switching direction after a failed trade, could easily lead to being cut down on both ends.
💡 BONUS: There are currently a lot of freshly launched tokenless perp DEXs with an ongoing points program. Preferring these over centralised exchanges could make you eligible for their airdrops. DEXs like Aster and Lighter are way overfarmed at this point, and therefore, my focus is on the little bit smaller ones. Pacifica on Solana is very good, as well as Based on HyperEVM. With the latter one, you are actually farming the Hyperliquid at the same time since it's built on top of HL.
Hope you found this somewhat helpful. Thank you for reading!
Follow for more on X!
🔹 Hyperliquid - the best perp DEX out there. Trade, stake & farm the next big airdrop!
🔹 Based - do your trades here and farm both, Based and Hyperliquid at the same time!
🔹 Pacifica - under farmed perp dex on Solana. Invite code needed: 0P45XY05CW72G5YF if this has already been used, ask for more in the comments!
🔹 Hybra Finance - New protocol! earn points by providing liquidity, we're still early
🔹 HypurrFi - farm airdrop points with stables by entering ref code BRANDO28
🔹 LeoDex - multi-chain, multi-wallet dex for all of your swaps
🔹 VOLO - stake SUI to earn APR & airdrop points!
🔹 Pawtato Land - very useful SUI dashboard, earn XP for the airdrop by completing small tasks
🔹 Huma Finance - easy to farm an airdrop on Solana. Deposit USDC, earn APR % points