High-leverage contracts allow traders to significantly amplify their market exposure in digital assets with a minimal initial capital outlay. These derivative instruments, such as futures or perpetual swaps, permit controlling a large nominal value of cryptocurrency with a small amount of margin. While offering the potential for substantial returns on capital, they also proportionally increase the risk of rapid and complete loss of the deposited margin. Even minor price fluctuations can trigger liquidation.
Context
The prevalence of high-leverage contracts on cryptocurrency exchanges contributes to market volatility and liquidation cascades during sharp price movements. Regulatory bodies globally are examining these products due to concerns over retail investor protection and systemic risk. Traders frequently use high leverage to speculate on short-term price swings, requiring precise risk management.
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