Entrance
The cryptocurrency market attracts many investors with its high volatility and large profit potential. However, this market also carries great risks. Especially small investors may experience large losses due to liquidation tricks and margin transactions of crypto exchanges. In this article, we will examine how such tricks work, what tactics exchanges use and how you can avoid such traps.
What are Margin Transactions and Liquidation?
Margin Trading: Allows investors to open leveraged positions by borrowing money. While this can increase the investor's potential gain, it also increases their losses.
Liquidation: The assets in the account of an investor performing margin transactions are automatically sold if they fall to a certain price level. This happens if the investor cannot pay his debt.
Liquidation Tricks
Stop-Loss Hunting: Exchanges can manipulate prices to prey on investors' stop-loss orders. This automatically closes investors' positions by pushing the price to a certain level for a short time.
Sudden Increase in Volatility: Stock markets may experience sudden price movements at a particular time. This can trigger liquidation in margin transactions, causing small investors to lose their positions.
Order Book Manipulation: Major exchanges can manipulate prices using large buy or sell orders in their order book. This may affect the positions of investors trading on margin.
Real World Examples and Evidence
BitMEX and Liquidation Events: Exchanges such as BitMEX were accused of liquidating the positions of many investors due to sudden price movements. The major liquidation events that took place on BitMEX in 2019 are an example of such manipulations.
Binance and Sudden Price Drops: Sudden price drops on Binance in 2020 caused many investors to liquidate their margin positions. These events strengthened claims that stock markets could manipulate prices.
Other Tactics Used by Exchanges
Offering Excessive Leverage: Exchanges encourage investors to open larger positions by offering high leverage rates. This can cause investors to suffer rapid and large losses.
Hidden Fees: Hidden fees and high interest rates may apply when trading on margin. This increases the profits of the exchanges while reducing the profits of investors.
Poor Customer Service: In the face of problems experienced during liquidation or margin transactions, exchanges often provide slow or inadequate customer service. This may cause investors to experience delays in resolving their issues.
Ways to Avoid These Kinds of Cheats
Use of Low Leverage: Avoiding high leverage ratios can minimize possible losses.
Using Stop-Loss Orders Carefully: Carefully positioning stop-loss orders can help protect against sudden price movements.
Choosing Trustworthy Exchanges: Trading on regulated exchanges with good reputations can reduce the risk of manipulation.
Education and Awareness: Having detailed information about crypto markets and margin transactions enables more informed decisions to be made by being aware of the risks.
Conclusion
Liquidation tricks and margin transactions of crypto exchanges pose great risks for small investors. The tactics and hedges reviewed in this article can help investors trade more consciously and safely. Being aware of the risks of manipulation in the market and acting carefully and consciously will help investors minimize their losses.
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