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BTC daily price rise and fall, data source: yahoo finance, BTC-USD

This distribution is approximately centered on 1, and the standard deviation can be calculated to be 0.038788, in other words, the standard deviation is about 3.9%.

What does this standard deviation mean? Let's see the picture below. That is to say, the probability that the daily rise and fall falls within the range of plus or minus one standard deviation is 34.1% *2. = 68.2%

In other words, there is a 31.8% chance that the stock will rise or fall by more than 3.9% on a daily basis.

Then at a certain point, the possibility of falling by more than 3.9% the next day is close to 16%.

When 20 times leverage is opened, the standard for forced liquidation on the platform will be set at around 4%. Then, the 20 times leveraged contract will be liquidated every five to six times.

This is why the platform likes players with 20 times leverage: as long as you play with me, no matter how much you can earn each time, as long as you use full leverage every time, your money will return to zero five or six times.

So if you want your assets to be more secure, how should you set the leverage properly?

From the figure, if you want smaller risks, it is best to set the liquidation risk of leverage beyond 3 times sigma. At this time, the probability of liquidation is less than 1%. The relative liquidation line is down 11.7%, corresponding to The leverage is 5-6 times.

Another thing to note is that the distribution of the percentage increase and decrease of the currency price is not a true normal distribution, but a fat-tailed distribution, which means that the possibility of a large decline is greater than that of a normal distribution.

Therefore, in order to better reduce the risk, it is necessary to further reduce the leverage. According to the calculation above, the leverage on BTC does not exceed 3 times, which is relatively less risky.

Other currencies can be analyzed similarly. For many small currencies, twice the leverage is extremely unsafe.

If you understand some common sense of probability theory, you may be able to live longer in this market.