🚫🚫 IMPORTANT NOTICE 🚫🚫
If you're involved in Futures trading, please pay attention. Using leverage can lead to significant risks in the market.
I've stressed before: "Avoid futures trading and leverage, especially if you're new to crypto, and even if you have several years of experience." But now, I want to explain how leverage impacts crypto market movements.
Let's start with how leverage operates. Imagine you initiate a $500 trade with 10X leverage. This makes it appear as if you're trading with $5000. The exchange, like Binance, lends you $4500 against your $500. If the price drops by 10%, your $5000 position decreases to $4500, triggering automatic closure to prevent debt. This is known as being "liquidated."
When you're liquidated in a long position, it prompts an immediate market sell-off. Essentially, your remaining $4500 is sold off to cover Binance's exposure.
Now, scale this up. Picture 100,000 traders entering long positions with 10X leverage on ETH at different price levels like $2.8K, $3K, and $3.2K. If ETH's price drops to $2.7K (a 10% decrease from $3K), those traders get liquidated, causing massive sell orders that drive ETH's price down further, potentially to $2.5K. This chain reaction of liquidations is called cascading liquidations.
When numerous traders use leverage, it heightens the risk of rapid and severe liquidations, leading to "flash crashes" where ETH's value can plummet by 15-20% in just minutes. This phenomenon mirrors what happens in traditional finance among banks and hedge funds. . CLICK🔗
