1.What is Risk Limit?
Risk limit is an important risk management tool designed to reduce potential risks associated with market fluctuations by setting a ceiling on the number of positions a user can hold. In Futures trading, risk limits can effectively prevent severe price fluctuations in the market caused by large-scale forced liquidations. When a user's positions reach or exceed the set risk limits, the system will automatically increase the maintenance margin and the initial margin ratios. This means that the user will need more funds to maintain their positions, reducing the risk of making large trades using high leverage. The risk limits for different Futures markets are different. Under different risk limits, the maintenance margin ratio and initial margin requirements vary. Details: Risk Limits for Futures Markets
2.Why will Risk Limits lead to copy trade failures?
Copiers, regardless of the amount of capital they use to copy, will have the same risk limits configured by the lead trader. This may result in situations where copiers with larger amounts of capital could easily face failures in their copy trades due to issues related to risk limits. For example: If the lead trader has a capital of 1000 USDT and the risk limit for a certain Futures market is 5000 USDT, even if the copier has 10,000 USDT, the risk limit for that Futures market remains 5000 USDT. This leads to situations where the copier accumulates a total position value (including pending orders) exceeding 5000 USDT in that Futures market, which will trigger a failure in the copy trade. To illustrate with the previous example: When the lead trader has 1000 USDT and uses 5 USDT as a margin with 50x leverage, he opens a position with a value of 250 USDT. If the copier copies proportionally, he would use 50 USDT as margin, also with 50x leverage, to open an order worth 2500 USDT. Since the copier's risk limit is still 5000 USDT, and 2500 USDT is less than 5000 USDT, the order is successfully placed. Now, if the lead trader continues to use 10 USDT as margin with 50x leverage to open a position worth 500 USDT, the total position value for the lead trader in that Futures market would now be 250 + 500 = 750 USDT, which is still less than 5000 USDT, allowing them to successfully open the position. However, at this point, the copier will copy proportionally and use 100 USDT as margin with 50x leverage to open an order worth 5000 USDT. But considering the total position, including pending orders, the copier would have a position value of 2500 + 5000 = 7500 USDT, which exceeds the risk limit of 5000 USDT. As a result, the order worth 5000 USDT will fail.
3.Which situations will easily trigger copy trade failures due to risk limit issues?
When the copier's capital is significantly larger than the lead trader's, and the risk limit for the Futures market operated by the lead trader is relatively low, then the copier is likely to encounter this issue. For example, if a copier has 100,000 USDT and the risk limit for a certain Futures market set by the trader is 20,000 USDT, it is easy for the copier to encounter copy trade failures.
4.How to reduce copy trade failures caused by Risk Limits?
-Copiers should avoid using large amounts of capital to copy trades and should refrain from copying lead traders whose capital amounts differ significantly from their own.
-Users can split their capital across several accounts for copy trading, which reduces the amount of capital in any single account. Note: The risk limits for sub-accounts and the main account are independent. By opening multiple sub-accounts, users can diversify their investments.
-After accepting large copiers, lead traders should adjust their Futures risk limits accordingly or directly remove copiers with excessively large amounts.
-Set Risk Limit on Web:
Perpetual Futures - Click Icon - Set
-Set Risk Limit on APP
Futures - Click Icon - Set
