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Stop Loss vs. Stop Bleed: Escaping the Margin Call Spiral

Introduction​

In leveraged markets, the default advice is simple: use a stop loss. But a stop loss isn’t the only way to manage risk. There’s another option — one I call the Stop Bleed. Instead of cutting the trade or endlessly adding margin, you can hedge the other side of your position, freezing P&L in place.

The Margin Call Spiral​

Here’s how it usually goes:

  1. You go long. Price moves against you.
  2. Your margin shrinks.
  3. You either cut the trade (realizing a loss) or add collateral.
  4. Many traders keep adding, entering the margin call spiral until liquidation wipes the account.

Pop culture dramatizes this cycle (The Big Short, for instance). The assumption is: to be right eventually, you must bleed until the market agrees.

But in perpetual futures markets, you don’t.

Stop Loss vs. Stop Bleed​

  • Stop Loss → Exit entirely. Conviction is abandoned.
  • Stop Bleed → Hedge the other side. Exposure goes neutral. Your position stops bleeding (or strengthening).

Think of it as pressing pause instead of eject.

Why Delta-Neutral Works​

  • Directional risk frozen: A long of 2 SOL hedged with a short of 2 SOL means price swings no longer impact PnL.
  • Funding offset: One side pays funding, the other side receives it. Your net cost is minimal.
  • Flexibility: When conditions shift, you lift the hedge and re-engage without having been liquidated or forced out.

Real-World Test (to be updated)​

I’ll be running a small test portfolio with 1–2 SOL to measure this in practice:

  • Funding flows over several days.
  • Execution costs of entering/exiting hedges.

These results will be added here as a real case study.

The Mental Shift​

The Stop Bleed isn’t glamorous. It won’t make you money on its own. But it does one thing very well: it buys time.

  • You survive without capitulating.
  • You preserve optionality.
  • You avoid the spiral.

It’s not weakness — it’s discipline.