As we said in the last post, we should now expect a liquidation feast in the crypto market. And of course, you shouldn’t open short positions now. In the current market, work should only be long!
For example, consider the coin $MINA , which very well shows the principle of how position liquidations work.
🩸 How does liquidation work?
This process occurs solely due to the use of the shoulders. When opening such a transaction, the expected liquidation price will immediately be indicated in the terminal.
Moreover, exchanges insure themselves in advance and make the liquidation price 20-30% lower or higher, depending on the long or short position.
For example, if you open a short trade with a leverage of x10, your liquidation will not be after the price has risen by +10%, but after the price has risen by approximately +8%.
In this way, the exchange is insured against losses, since cases of liquidation of traders who end up owing money to the exchange are not uncommon.
But even such insurance does not always save exchanges from losses.
🔍 As you can see on the chart, the MINA coin increased by +85% within a day. Of course, such growth is only possible due to liquidations, which were record-breaking in the entire history of this coin.
The coin moved in a downward trend throughout 2023, periodically testing the trend line. Apparently, new short positions were constantly opened near this trend. This means that there is a huge amount of liquidity above the trend, which the market eventually collected in the last couple of days.
💰 The position liquidation itself occurs essentially with a market order. When the price reaches the liquidation price, your position is closed at the market, that is, it hits the order book.
MINA is a low-liquid altcoin, which means the order book is relatively empty.
As a result, we see such a huge upward impulse that has collected a lot of liquidity.
We hope you now understand that leveraged trading in low-liquidity assets is evil, not to mention short trading.
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