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đ´đ´ URGENT NOTICE FOR FUTURES TRADERS đ´đ´
This is a critical advisory:Â Leverage can lead to significant losses in the market.
Despite numerous warnings to avoid futures trading and leveraging, especially for those new to crypto, itâs crucial to understand how leverage influences crypto market movements.
Understanding Leverage: Letâs say you open a trade with $500 using 10X leverage. This gives you a position worth $5000. How? Exchanges like Binance lend you the additional $4500. If prices drop by 10% (reducing your $5000 to $4500), your position gets closed to prevent debtâthis is known as âliquidation.â
Liquidation in Long Positions: In a long position, liquidation means your $4500 is sold off instantly, causing a market sell-off to recover Binanceâs money.
The Impact of Large-Scale Liquidations: Imagine if 100,000 traders use 10X leverage on ETH at $2.8K, $3K, and $3.2K. If ETH drops to $2.7K, those at $3K get liquidated, triggering massive sell orders that push ETH down to $2.5K. This triggers more liquidations from those at $2.8K, leading to a chain reaction known as cascading liquidations.
The Risk of Flash Crashes: When too many leverage positions are open, the risk of rapid liquidations increases, leading to âFLASH CRASHES.â These are moments when ETH can plummet 15-20% in minutes. This phenomenon also occurs in traditional finance with banks and hedge funds.
Please take this seriously. Trading involves risk, and itâs important to make informed decisions.
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