Guide
Perpetual Contracts and Leverage: A Beginner's Risk Guide
Margin, funding, liquidation, and position sizing explained plainly, with a pre-trade checklist.
Last fact-checked: August 21, 2026
Short answer
A perpetual contract is a derivative that tracks an asset's price with no expiry, held against margin and periodic funding payments. Leverage multiplies both gains and losses: at 10x, a 10% adverse move can wipe out the margin, and the position is liquidated. Most of the risk is in position sizing, not market direction.
What is a perpetual contract?
It is a contract that tracks the price of an underlying asset without an expiry date. You do not own the asset. You post margin, you hold a position, and you pay or receive funding at intervals to keep the contract price aligned with the spot market.
What does leverage actually do?
| Leverage | Adverse move that erases margin | Effect of a 5% adverse move |
|---|---|---|
| 2x | 50% | 10% of margin lost |
| 5x | 20% | 25% of margin lost |
| 10x | 10% | 50% of margin lost |
| 25x | 4% | Margin erased before this point |
| 50x | 2% | Margin erased before this point |
Leverage does not increase your edge. It increases the size of your exposure relative to your capital, which means ordinary volatility becomes account-threatening. In practice, liquidation happens before the theoretical wipe-out point because maintenance margin requirements bite earlier.
What is liquidation?
When your margin falls below the maintenance requirement, the position is closed for you. You do not choose the moment or the price. In fast markets, the realised outcome can be worse than the level you expected, and the loss is permanent.
What is funding, and why does it matter?
Funding is a periodic payment between long and short holders that keeps the perpetual price near spot. Holding a crowded position can mean paying funding repeatedly. Over weeks, funding on a heavily one-sided market is a real cost, independent of whether your directional view is right.
How should a beginner size a position?
- Decide the maximum loss in currency, not in percentage of a mental account.
- Work backwards from that loss to the position size, given your stop distance.
- Choose leverage last — it is a consequence of sizing, not a starting choice.
- Assume slippage will make the stop worse than planned.
- Assume you will be wrong more often than you expect.
Editorial explanationThe single most useful habit we can suggest is to write the loss number down before opening the position. If seeing the number in advance makes you uncomfortable, the size is wrong.
Pre-trade checklist
- Can I afford to lose this entire amount without changing my life?
- Do I know my liquidation price?
- Do I know the total fee cost of entering and exiting?
- Do I know what funding will cost if I hold for days?
- Do I have an exit plan for being wrong, not only for being right?
- Am I trading because of analysis, or because of a leaderboard, a timer, or a loss I want back?
Where cashback fits — and does not
Referral cashback rebates part of one fee on losing trades. It is a rounding adjustment against liquidation risk. No fee benefit makes leveraged trading safe, and nothing on this site is investment advice.
Open Legend with the referral cashback applied
If this guide answered your questions and you plan to trade on Legend anyway, registering through the referral link is what makes the documented 10% cashback on Legend platform fees from losing trades available on your account.
Affiliate link. The site owner may earn a portion of Legend's builder-fee revenue if you trade. Perpetual trading and leverage can result in rapid losses. Read the full affiliate disclosure.
Frequently asked questions
Is 50x leverage ever appropriate for a beginner?
No responsible reading of the risk supports it. At that level a 2% adverse move erases the margin, and crypto routinely moves more than that in minutes.
Can I lose more than I deposit?
Platform mechanics vary. Liquidation is designed to close positions before that point, but you should never assume a hard guarantee. Read the platform's current terms.
Does a stop-loss guarantee my exit price?
No. In volatile conditions, execution can occur at a worse price than the stop level.