### Critical Notice for Traders ###
Attention all futures traders! This update is crucial for your trading strategy.
### Understanding the Risks of Leverage
It’s been emphasized time and again: “Crypto newcomers should steer clear of futures and leverage. Even experienced traders should tread carefully.” Let’s explore the impact of leverage on the crypto market.
## Decoding Leverage
Leverage enables you to trade with borrowed funds. For instance, using $500 with 10X leverage allows you to trade as if you had $5000. If the market falls by 10%, your position risks being liquidated, leading to a series of sell-offs to cover the exchange’s margin. This can trigger a domino effect of sell orders, intensifying price declines.
## The Domino Effect of High Leverage
Consider a scenario where 100,000 traders are using 10X leverage on ETH at different levels. A modest 10% decline could spark widespread liquidations, leading to cascading sell-offs and substantial price drops. The risk of cascading liquidations heightens the likelihood of flash crashes, where prices drop rapidly within minutes.
## Reducing the Risk of Flash Crashes
Excessive leverage presents a clear risk of flash crashes, where ETH and other assets may see sudden drops of 15-20% due to mass liquidations. This phenomenon mirrors challenges encountered in traditional finance, particularly with banks and hedge funds.
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