🚨 The Dangers of Leverage in Crypto Markets 🚨 🚨

I've stressed this countless times: avoid using leverage and stay away from futures trading unless you want to lose your money. This time, I want to focus on how leverage impacts market movements in crypto. Understanding this is crucial.

Here's a quick rundown of leverage: if you open a trade with $100 and use 10x leverage, it acts as if you’re trading with $1,000. The exchange, such as Binance, lends you the additional $900. However, if the price drops by 10%, turning your $1,000 into $900, your position is automatically closed to prevent debt. This process is known as "liquidation."

When a long position is liquidated, it creates an instant market sell, meaning the exchange sells your remaining $900 to recover its money.

Now, let's consider this on a larger scale: imagine 10,000 traders enter long positions with 10x leverage on BTC at $65k, $67.5k, and $70k. If the price drops to $63k, those who bought at $70k are liquidated, causing massive sell-offs and further price drops to $60,750. This triggers liquidations for those who entered at $67.5k, creating a domino effect known as cascading liquidations.

When too many traders use leverage, it increases the risk of rapid, significant liquidations, potentially leading to "flash crashes," where BTC can lose 20-25% of its value in minutes. This phenomenon isn’t unique to crypto; it also occurs in traditional finance on a larger scale with banks and hedge funds.

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