Most of the time, when data on upcoming contract liquidation is issued, many invoice investors and analysts conclude the debate by claiming that it is the result of degenerate gamblers using more leverage or other risky instruments.
During most of the occasion when data on upcoming contracts liquidation many invoice investors and analysts end the argument saying that its degenerate gamblers using more leverage or other risky instruments.
There are no doubts that some exchanges are meant to incentivize retail trading to use more leverage, but that does not mean account for the whole derivatives market. Investors like Nithin Kamath, the founder and CEO at Zerodha, questioned how derivatives exchanges could handle utmost volatility while giving 100x leverage. During June 16, Journalist Colin Wu said that Huobi had temporarily left the maximum trading leverage to 5x for latest new users.
Soon after regulatory pressure and possible complaints from the community, Binance futures limited new users leverage trading at 20x on July 19. A week later, FTX followed the decision stating “efforts to encourage responsible trading.” Sam Bankman-Fried FTX Founder said that the average open leverage position was roughly 2x, and only “a tiny fraction of activity on the platform” would be affected. No one knows is these decisions have been coordinated by any regulator. Cryptocurrencies reached a 5% volatility causes 20x or higher leverage positions to be liquidated regularly.
Many investors try to learn the benefit of handling the highest possible shares of coins on a cold wallet due to preventing internet access to tokens which reduces the risk of hacks. The downside, is that position might not reach the exchange on time mostly when networks are overcrowded. Due to this reason, futures contracts are instruments traders use when they want to decrease their position during volatile markets. The traders could sell their positions on spot exchanges later after their transactions reached and closed the short position. Whales are aware of the volatile markets; the liquidity is usually less. Due to this some will intentionally open highly leveraged positions, expecting them to be cancelled due to insufficient margins. While they are allegedly losing money on the trade will in an intension to force cascading liquidations to pressure the market in their preferred direction. But one thing to remember is that trader always needs a huge amount of capital and potentially different accounts to conduct such a thing.