10.1 Why Product Basics Matter
Charts may look similar, but stocks, ETFs, futures, options, forex, spot crypto, and perpetual contracts have different mechanics and risks.
The same “short after support breaks” means different things:
- Shorting stocks may involve borrowing costs and forced buy-ins.
- Futures have leverage and daily settlement.
- Options have time decay, implied volatility, and Greek risks.
- Forex uses margin and is affected by spreads and swaps.
- Crypto perpetuals have funding, mark price, and liquidation.
Technical analysis solves only part of the problem. Product mechanics determine whether you can execute, what it costs, and where risks are.
10.2 Stocks
Stocks represent partial ownership in a company. Major risks include:
- Company fundamentals.
- Industry and macro environment.
- Earnings and sudden news.
- Liquidity differences.
- Gaps and halts.
Technical locations include highs/lows, gaps, post-earnings ranges, trendlines, and congestion areas. But do not ignore earnings and news timing.
If you short stocks, you also need to understand borrowing and margin rules. Shorting is not simply pressing “sell.” It means borrowing shares, selling them, and later buying them back to return. Borrow availability, borrow cost, margin requirements, forced buy-ins, and theoretically unlimited upside risk all change the real risk of the trade.
10.3 ETFs
ETFs are exchange-traded funds holding baskets of assets. They can trade indexes, sectors, commodities, bonds, or themes. Good ETFs reduce single-company risk and often have better liquidity.
Risks include:
- Tracking error.
- Underlying asset volatility.
- Path dependency in leveraged or inverse ETFs.
- Liquidity and premium/discount.
Do not treat all ETFs like ordinary index funds. Leveraged and inverse ETFs are usually short-term tools, not simple long-term holdings.
Leveraged and inverse ETFs are usually designed around a daily objective. When held for more than one trading day, compounding, volatility, and daily rebalancing can make results differ from “index move times leverage.” These products require attention to holding period, volatility environment, fees, and rebalancing effects, not only direction.
When evaluating leveraged or inverse ETFs, do not extrapolate “roughly multiple today” into “roughly multiple over the long run.” The longer the holding period and the higher the volatility, the more path dependency matters, and the more actual results can diverge from intuition.
10.4 Futures
Futures are standardized contracts for future delivery or cash settlement. They usually use margin and high leverage.
Understand:
- Contract multiplier.
- Tick size.
- Margin requirement.
- Expiration and roll.
- Daily settlement.
- Delivery or cash settlement rules.
Futures charts may look clean, but position sizing must be based on contract value and tick value, not only chart price.
Futures margin is not maximum loss. It is performance bond collateral. When price moves against the position, the account may face margin calls; in extreme cases, loss can exceed the initial amount committed. Before trading futures, calculate contract multiplier, tick value, margin use, and capital pressure during losing streaks.
Futures also require understanding daily mark-to-market and rolling. Account equity changes with settlement prices, and consecutive adverse moves can create continuing margin pressure. Near expiration, delivery, cash settlement, or rolling into the next contract can all affect the plan.
10.5 Options
Options give the buyer the right to buy or sell an underlying asset at a set price before or on a date. Calls and puts are not simply leveraged long/short tools; they are affected by time, volatility, and strike.
Risks include:
- Time decay.
- Implied volatility change.
- Liquidity and spread.
- Exercise and assignment.
- Tail risk in complex strategies.
If you understand candlesticks but not option pricing, do not treat options as leveraged stock substitutes.
Options also require separating buyer risk from seller risk. Buyers usually risk the premium paid, but that premium can decay toward zero. Sellers may face margin, assignment, and tail risk. Complex option structures do not automatically reduce risk; they often move risk into volatility, time, strike selection, and extreme-market behavior.
Before trading options, you should be able to answer: is maximum loss limited, is maximum profit limited, what happens around expiration, what happens if assigned, and how would a drop in implied volatility affect price? If those answers are unclear, candlestick analysis alone is not enough to support an options trade.
10.6 Forex
Forex trades currency pairs. One currency rising means it strengthens relative to another.
Focus on:
- Spread.
- Leverage and margin.
- Overnight swaps.
- Macro data and central bank events.
- Liquidity by session.
Forex seems continuous, but major data and low-liquidity sessions can widen spreads and slippage.
The core risks of margin forex are leverage and quote quality. Leverage limits, margin rules, and client protections differ by jurisdiction, so the maximum leverage offered by a platform should not be treated as an appropriate risk level. Around major data releases, weekends, and thin-liquidity sessions, plan with worse spreads and larger slippage.
Margin forex can also produce losses larger than the initial deposit, depending on jurisdiction, account protections, and platform execution. Do not focus only on small margin use; check whether extreme movement could lead to margin calls, liquidation, or negative balance risk.
10.7 Spot Crypto and Perpetual Contracts
Spot crypto is direct buying and selling of digital assets. Perpetual contracts are derivatives without fixed expiry and usually use funding rates to keep contract price near spot price.
Understand:
- Leverage.
- Margin mode.
- Liquidation price.
- Mark price.
- Funding rate.
- Exchange and liquidity risk.
When funding is positive, longs usually pay shorts. When funding is negative, shorts usually pay longs. Actual rules depend on the exchange.
Perpetual liquidation risk cannot be judged only from last traded price. Many platforms use mark price for liquidation to reduce the impact of abnormal movement in a single order book. If your chart displays last traded price, it may differ from mark price; stop, liquidation price, and margin buffer must be checked together.
Funding rates, funding intervals, mark-price formulas, and liquidation rules differ by platform. Do not treat one exchange’s rules as universal. Before placing an order, check the contract’s funding rate, funding time, margin mode, maintenance margin, and liquidation trigger price.
10.8 Product Selection Principles
When choosing a product, do not only imagine returns. Ask:
- Do you understand the mechanics?
- Can you calculate risk?
- Can you tolerate gaps, slippage, or liquidation?
- Is liquidity sufficient?
- Does it fit your holding period?
- Are rules and regulation clear?
Leveraged products you do not understand are one of the easiest ways for beginners to get hurt.