Only two months have passed in 2020, and on average, there were news of large-scale futures outflows in two weeks. Leverage has created liquidity in the currency circle. Without leverage, many financial instruments cannot be created, and the market will be much deserted. Leverage is typically good for the system but not good for the individual.
The leverage described in this article refers to a broad definition. Including loans, credit cards, margin transactions, and futures.
The benefits of leverage are obvious and can magnify gains. For the entire market, the role of leverage is particularly important, improving liquidity and market depth.
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I mainly want to avoid the use of leverage as much as possible from the harm of leverage to individuals.
The biggest harm of leverage is that it increases the volatility of assets and puts you under a pressure to clear at any time. The volatility of encrypted digital currencies is already very large. The rate of increase and decrease is 20%, and the leverage of 5 times is 100%. When the judgment is wrong, it is zero.
The leverage of futures is a zero clearing. Once an individual is all in futures, the short position is a personal bankruptcy. I see too many such cases. Before the liquidation, there was a huge wealth, and after the liquidation, it became extremely poor.
Borrowing money to buy cash, most borrowing money is collateral. If you make a wrong judgment and lose money, the lender will confiscate your collateral, which is the same reason as a liquidation. Margin to buy coins, that is, mortgage coins to borrow money to buy coins, will be liquidated just like futures. Mortgage the house to borrow money from the bank, and then go to buy coins, the judgment is wrong, the house will be fired.
Credit loan, collateral is your credit. Credit, once confiscated by the lender, is not simply an enemy problem. The lender will tell everyone that your credit attribute value is zero for everyone. This is far worse than losing a little money. You could be kicked out of the entire social trading network.
Revolving cash with credit cards and borrowings is used to borrow money using your future cash flow as collateral. Don't think about not paying back the credit card, there are ways in the society to kill you. The cash money bought the currency, and the judgment is wrong. What is lost is that all your income will be returned to the bank in the future.
Leverage has a cost of capital. Many people see that compared with the potential multiples and dozens of times, the annual cost of capital is more than a dozen, which is not enough. But what is overwhelming is never the proportion, but the absolute amount.
Futures are charged for opening and holding fees, but this may be the lowest capital cost of all leverage. But the risks of futures are the greatest.
The interest rate of most mortgage loans is more than 8% per annum, otherwise the bank will not make money. Most of the cost of credit loans is more than 18% annualized, otherwise the lender's bad debts will cause him to fail.
As long as the cost of borrowing exceeds the cash flow that a person's normal work can generate, it may bring a vicious circle, borrowing money and paying interest. If you have to pay 10,000 interest a month, but your salary is only 10,000, otherwise, you drink northwest wind, or you have to borrow thousands of dollars plus interest to pay off the old account.
With leverage to buy coins, the potential gains may have to be realized over the years. Most people's confidence in a currency comes from its price increase, and it is easiest to build confidence in a bull market. However, the currency has been rising sharply and falling all the time. It has risen quickly, and when it falls, it is too long and long. Under such a background, it is too difficult to enter the market accurately and make a timely appearance. What's more likely is that during the long decline process, you will have to drop your currency assets every month and double the suffering of the interest on leverage.
The leverage on buying currency is potential, and the cost of capital is real. "Latent" means that there may or may not be. "Real" means there must be. You choose.
Leveraging is addictive. Drugs are banned by governments around the world and hostile to all humanity because of their addiction. Leveraging is just as addictive as drugs.
Most people start leverage by borrowing thousands or even hundreds of dollars. Futures start with a contract valued at $ 10 and only open a few. At this small level, it is okay to lose, it is nothing more than a good meal. But if we win, it will be a greater disaster.
Winning the leverage will bring you the thrill that next time you will open a greater leverage. Leverage wins once, and the next time you open the same leverage, there is no more excitement than before. The only way to get more excitement is to use greater leverage.
How many people started by borrowing a thousand dollars and then borrowed to millions. In retrospect, I was scared.
The small lever is wrong, and it won't kill you. But the joy of leverage, try again and again, you need more and more stimulation, sooner or later, leverage will kill you all at once.
Leverage takes a lot of time and effort. This time and energy comes at an opportunity cost. It could have been used to create wealth but wasted on leverage.
Even if the coins bought with our own deposits have fallen, we may just pretend to give up. However, the currency we bought with leverage fell and our sadness was several times that of the former.
If your leverage is margin and futures, you may turn on your phone more than 10 times a day to see if your funds will be liquidated.
If your leverage is to borrow money from others, you have to worry about others running away.
If your leverage is borrowing, you have to deal with one more creditor, and you have to check your credit card bill several times. I'm so annoyed.
Friends, have the time and energy to read the book.
The future price of any coin can only be three possibilities: up, down, and sideways. Leverage can only accept one: it is up. As long as it does not rise, the cost of leveraged funds will devour your future. But some people would say that I'm terrific, and I can judge the price change. But this is all probabilistic. He may have judged it right 99 times, but the addictive nature of leverage allowed him to put all his life on the 100th time, and then ran out of liquidation.
If you really want to amplify your income, leverage is best: 1. The cost of capital is lower than inflation; 2. It will not be out of short-term volatility; 3. You must not be addicted. All three are better.
Author: Huang Shiliang
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