🚫🚫 ATTENTION PLEASE 🚫🚫
If you trade in Futures, then read this.
**LEVERAGE CAN CAUSE BIG PROBLEMS IN THE MARKET**
I've said it before: "Don't try futures and don't use leverage if you're new to crypto. Even if you have 3-4 years of experience, please be cautious." Now, I'll explain how leverage affects the crypto market. This is important, so please pay attention.
**How Leverage Works:**
- If you open a trade with $500 and use 10X leverage, it’s like having $5000 in your account.
- The exchange (like Binance) lends you $4500. If the price drops by 10%, your $5000 becomes $4500, and your position is automatically closed (liquidated) to prevent debt.
**Impact of Liquidation:**
- When you get liquidated, your remaining $4500 is sold to repay Binance. This creates a market sell-off.
- On a larger scale, if many traders use leverage and prices drop, it triggers massive sell-offs, causing prices to fall even more. This can lead to a chain reaction called "cascading liquidations."
**Example:**
- Imagine 100,000 traders use 10X leverage on ETH at $2.8K, $3K, and $3.2K.
- If the price drops to $2.7K (-10% from $3K), these traders get liquidated, triggering massive sell orders.
- This can push ETH down to $2.5K, causing further liquidations and even more price drops.
**Flash Crashes:**
- Too many leveraged positions can lead to rapid liquidations, creating "flash crashes" where ETH can drop 15-20% in minutes.
- This happens in traditional finance too, but we're focusing on crypto here.
Take this seriously and be cautious with leverage.