Leverage is a Double-edged SwordBitcoin FuturesCME_DL:BTC1!JimHuangChicagoCME: Micro Bitcoin Futures ( MBT1!) On October 6th, Bitcoin spot price hit a new all-time-high record at $126,198.07. The King of Crypto seemed unstoppable. Just four days later, President Trump escalated trade tension with China by threatening 100% additional tariff. This sparked a broad market selloff. The crypto market was among the hardest hits. Bitcoin plunged 11% for the day. A post on X by The Kobeissi Letter captured the latest crypto crash: "It's official: Crypto just saw its LARGEST liquidation event in history with 1.6 MILLION traders liquidated. Over $19 BILLION worth of leveraged crypto positions were liquidated in 24 hours, 9 TIMES the previous record." It notes it marked a single-day swing in Bitcoin's market cap of a $380 billion. Leverage: A Double-Edged Sword Leverage allows investors to amplify returns by borrowing funds, but it also magnifies losses, as seen in this crash. In crypto, traders often use 10x, 50x, or even 100x leverage, controlling large positions with very minimal capital. It was this overexposure, fueled by excessive leverage, that led to the $19 billion liquidation. Margin trading can boost gains, but risks margin calls if prices suddenly drop, forcing asset sales at a loss. The risks of leverage are stark: a mere 2% price drop on a 50x leveraged BTC position wipes out 100% of the initial investment. Volatility, already high in crypto, makes leverage treacherous. A sudden drop of 5%, very common in cryptos, will overblow a $100K investment into negative balance of $150K for the same account. While there are no regulatory limits in the U.S. restrict retail crypto leverage, few exchanges offer it. On the other hand, offshore crypto trading platforms offer much higher ratios, increasing exposure. Without stop-loss orders or risk management, leverage can turn a manageable dip into a total loss. Some crypto platforms offer Derivatives contracts. The name is often misleading. Many so-called “Exchanges” are not registered nor regulated by financial regulatory authorities. These contracts do not have the financial safeguard in place to protect the investors. Investing in bitcoin is like riding a roller coaster. Taking on high leverage will be like not wearing a seatbelt. You could get thrown out of the ride every time it takes a turn. Protecting your Bitcoin with CME Futures As of October 18th, Bitcoin is up nearly 12% year-to-date. However, the gain was 32% when Bitcoin hit ATH. In less than two weeks, we have witnessed an 18% drawdown. Despite the crash, Bitcoin’s long-term potential remains high. Its fixed supply of 21-million-coin and growing institutional adoption through exchange-traded funds and corporate treasuries support its "digital gold" narrative. Traders who are bullish on bitcoin could explore CME Micro Bitcoin Futures (MBT). The MBT contract has a notional value of 0.10 bitcoin, as defined by the CME CF Bitcoin Reference Rate (BRR). On October 18th, the December contract (MBTZ5) is quoted at $108,495. Each contract has a notional value of $10,850. To buy or sell one contract, CME Group requires an initial margin of $2,590. By design, this futures contract has a built-in leverage of 4.2-to-1. When bitcoin goes up, futures positions could enhance the return by four times compared to spot bitcoin positions. What happens if bitcoin drops? For price protection, traders could enter a buy order with a stoploss. For example, a long order at 108,495 with a stoploss of 100,000 limit the maximum loss to $849.5 (= (108495-100000) x 0.1). In addition to margin (leverage) and stoploss (loss protection), Micro Bitcoin has a daily price limit at 10%. This feature is particularly helpful when the market is panicky. Price Limit or Circuit slows down the irrational price movements until cooler heads prevail. To recap: 1)Always invest in Exchanges regulated by a national financial regulatory authority. 2)Employing bitcoin futures and options could enhance investment return. 3)Use stop loss to set maximum loss at a level within your tolerance. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs https://www.tradingview.com/cme/