Will Upbit perpetual contract blow up

Upbit's perpetual contracts introduce risks similar to FTX's leveraged tokens, including leverage risk, market risk, and operational risk associated with centralized exchanges.

Nov 17, 2024 at 10:32 pm

Will Upbit Perpetual Contract Blow Up?

Introduction

Upbit, the largest cryptocurrency exchange in South Korea, recently launched perpetual contracts, a new type of derivative instrument. Perpetual contracts are similar to futures contracts, but they do not have an expiry date. This means that traders can hold positions indefinitely, or until they decide to close them.

There has been some speculation that Upbit's perpetual contracts could blow up, similar to what happened with FTX's leveraged tokens. This is because perpetual contracts are a leveraged product, which means that traders can use them to amplify their profits (and losses). If the market moves against a trader's position, they could lose more money than they originally invested.

In this article, we will take a closer look at Upbit's perpetual contracts and assess the risks involved in trading them. We will also discuss some steps that traders can take to reduce their risk when trading perpetual contracts.

Risks of Trading Upbit Perpetual Contracts

There are a number of risks associated with trading Upbit perpetual contracts, including:

1. Leverage Risk: Perpetual contracts are a leveraged product, which means that traders can use them to amplify their profits (and losses). This can be a double-edged sword, as it can lead to both large profits and large losses. Traders should be aware of the risks involved in using leverage and should only use it with caution.
2. Market Risk: The cryptocurrency market is volatile, and prices can move quickly in either direction. This can make it difficult to predict the future price of a cryptocurrency, and traders could lose money if the market moves against their position.
3. Operational Risk: Upbit is a centralized exchange, which means that it is subject to operational risks, such as hacking, downtime, and fraud. If Upbit experiences any operational problems, traders could lose money.

Steps to Reduce Risk When Trading Perpetual Contracts

There are a number of steps that traders can take to reduce their risk when trading perpetual contracts, including:

1. Understand the Risks: Before trading perpetual contracts, it is important to understand the risks involved. Traders should make sure that they understand how leverage works and how the cryptocurrency market operates.
2. Use a Stop-Loss Order: A stop-loss order is a type of order that automatically triggers when the price of a cryptocurrency reaches a certain level. This can help to limit losses if the market moves against a trader's position.
3. Trade with a Small Amount of Size: When first starting out, it is important to trade with a small amount of size. This will help to reduce the risk of losing a large amount of money.
4. Don't FOMO: FOMO stands for "fear of missing out" and is a common emotion that can lead to bad trading decisions. When the market is moving quickly, it is important to stay calm and make rational decisions.

Conclusion

Perpetual contracts can be a powerful tool for traders, but they also come with a number of risks. Traders should be aware of these risks and should take steps to reduce them when trading perpetual contracts.