Bitcoin's frequent liquidation, how can high-leverage trading become a 'death talisman”
There are huge risks of high leverage trading in cryptocurrencies, and there are four main reasons: 1. Leverage has a "double-edged sword" effect. Although it can amplify returns, a slight fluctuation in prices can lead to huge losses or even liquidation; 2. Insufficient market liquidity, it is difficult to close positions in time during violent fluctuations, which aggravates losses; 3. Human greed and risk control lack, investors ignore risk management, and the exchange mechanism also lacks effective buffering; 4. Lack of supervision encourages speculation, and some exchanges provide ultra-high leverage and give birth to an irrational trading culture.
Global Bitcoin Trading Platform:
Ouyi OKX:
Binance Binance:
Huobi:
Gateio Sesame Opening:
In recent years, the prices of cryptocurrencies such as Bitcoin have fluctuated sharply, resulting in frequent liquidation of high-leverage traders and heavy losses. Leveraged trading is a tool to amplify returns, but in extreme market conditions, it has become a "death talisman" for countless investors. The risk mechanism behind it is worthy of in-depth analysis.
1. The "double-edged sword" effect of leverage
Leveraged trading allows investors to trade with a small amount of margin to leverage several or even hundreds of times of funds. For example, when using 100 times leverage, the price fluctuates by 1%, and the account equity will double or clear. In a bull market, leverage can bring huge profits; but once the market fluctuates in the reverse direction, huge losses will instantly trigger the strong leveling mechanism, resulting in a liquidation. When Bitcoin plummeted from $60,000 to $30,000 in 2021, more than 600,000 people lost their positions within 24 hours, with losses exceeding $10 billion.
2. Market volatility and liquidity traps
The cryptocurrency market itself lacks liquidity and lacks effective supervision, which is easily affected by manipulation by large investors or bursting news. When prices fluctuate violently, the exchange's forced leveling system may be unable to close the position as expected due to liquidity depletion, aggravating losses. For example, in the "3.12" plunge in 2020, Bitcoin fell by more than 50% intraday, and many highly leveraged positions were even "passed through" and owed exchange funds.
3. Human weaknesses and lack of risk control
High leverage amplifies the greed and fear of human nature. In order to pursue short-term profits, many investors ignore risk management and even increase their positions in borrowing. The exchange's "position-by-position margin" model (single position independent tightening) further weakens the risk buffering ability. Once the market suddenly changes, the stop loss instruction may not be executed due to slippage or system congestion, and eventually lose all your money.
4. Absent supervision and speculative culture
Compared with traditional financial markets, the cryptocurrency sector lacks leverage ratio restrictions and investor protection measures. In order to attract users, some exchanges provide up to 125 times of leverage, which objectively encourages irrational speculation. In addition, the "contract" culture is prevalent in the community, further induced retail investors to enter the market.
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