US day traders flock to the most dangerous product in crypto

Perpetual futures contracts, affectionately known as “perps” in crypto circles, have become the instrument of choice for a growing cohort of US retail traders chasing outsized returns. The problem: the data on who actually wins this game is, to put it gently, discouraging.

What perps are and why they’re a problem

Think of a perpetual futures contract as a bet on the future price of a crypto asset, except there’s no expiration date. Traditional futures have a settlement date baked in. Perps just keep going, like a tab you never close at the bar.

The appeal is leverage. Platforms offer anywhere from 50x to over 100x leverage on these contracts, meaning a trader can control $100,000 worth of Bitcoin with just $1,000 of their own capital. In English: if the price moves 1% in your favor, you double your money. If it moves 1% against you, you’re wiped out.

Funding rates, which are periodic payments exchanged between long and short traders to keep the contract price tethered to the underlying asset, can swing wildly during volatile periods. When markets move fast, these rates can eat into positions even when a trader’s directional bet is technically correct.

Then there are liquidation cascades. When a leveraged position gets forcibly closed because the trader’s margin is depleted, it can trigger a chain reaction. One liquidation pushes the price further, which triggers more liquidations, which pushes the price further still.

The numbers are brutal

Research consistently shows that somewhere between 70% and 97% of day traders lose money over time. Those aren’t cherry-picked studies from crypto skeptics. That range reflects findings across multiple asset classes and market conditions.

The 24/7 nature of crypto markets deserves its own mention. Traditional stock day traders at least get to sleep without worrying about a 3 AM price crash liquidating their positions. Crypto traders don’t get that luxury. A leveraged perps position is always live, always exposed.

Wall Street wants in on the action

Wall Street institutions have been eyeing crypto-style derivatives products, recognizing the enormous trading volumes and fee revenue these instruments generate.

The CFTC and SEC have both signaled concerns about retail access to instruments that can result in losses exceeding the initial investment.

Liquidation cascades in the perps market can drive spot prices down sharply, meaning a wave of over-leveraged longs getting wiped out can crater the price of Bitcoin or Ethereum for everyone.

Platforms compete by offering higher leverage limits and lower margin requirements, essentially racing to give traders more rope.

Anyone considering perps should internalize one statistic: between 70% and 97% of participants in these markets lose money. The product is designed to be exciting. It is not designed to make retail traders rich.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.