**🔴🔴 ATTENTION TRADERS 🔴🔴**
If you’re involved in futures trading, this is a crucial read for you.
**🔴 LEVERAGE: A POTENTIAL MARKET HAZARD**
- **Caution Advised:** I've frequently advised against using futures and leverage, especially for newcomers to crypto trading. Even with 3-4 years of experience, it's best to avoid them.
- **Understanding Impact:** This discussion focuses on understanding how leverage affects crypto market movements.
**🔴 WHAT IS LEVERAGE?**
- **Amplified Trading:** Leverage allows you to amplify your trading position. For example, if you open a trade with $500 using 10X leverage, it acts as if you have $5000.
- **Exchange Lending:** The exchange (e.g., Binance) lends you $4500. If the price drops by 10% (your $5000 becomes $4500), your position is automatically closed to prevent you from owing the exchange, a process called liquidation.
- **Liquidation Process:** When you get liquidated on a long position, it creates a market sell-off at the moment of liquidation. Your remaining $4500 is sold to recover the exchange's money.
**🔴 LEVERAGE ON A LARGER SCALE**
- **Massive Impact:** Imagine 100,000 traders go long with 10X leverage on ETH at different levels: $2.8K, $3K, and $3.2K. If the price drops to $2.7K, a 10% decrease from $3K, those traders will be liquidated.
- **Cascading Effect:** This triggers massive sell orders, significantly pushing down ETH's price. It could drop further to $2.5K due to cascading liquidations, affecting those who entered at $2.8K and continuing the cycle.
**🔴 RISK OF FLASH CRASHES**
- **Rapid Liquidations:** Excessive leveraged positions create a risk of rapid, intense liquidations, leading to "flash crashes" where ETH can drop 15-20% within minutes.
- **Not Just Crypto:** This phenomenon is not limited to crypto; it also occurs in traditional finance, affecting banks, hedge funds, and other entities.
**Stay informed and trade wisely!**
