Deep falls of BTC prices because of the phenomenon of cascading liquidations on futures market
Deep falls of BTC prices because of the phenomenon of cascading liquidations on futures market

Deep falls of BTC prices because of the phenomenon of cascading liquidations on futures market

By Greenchic | Investing and Trading | 2 Jun 2021


 

btc, bitcoin, crypto


BTC falls are at times severe because of automatic liquidations that happen to BTC investments in futures market that happen on margin trading. In margin trading people trade more BTCs by borrowing more BTCs which they obtain by putting their existing BTC as collateral for obtaining the loan.

The idea here is that traders would make money with BTC prices going upwards giving them profits through which they can easily pay back the loans they have taken.

 

When BTC prices fall then BTC that’s kept on collateral gets liquidated

 

However, when BTC prices go down, the BTC that is put for collateral automatically gets liquidated, therefore the trader loses all his BTC holdings.

THis is why over leveraged positions in risky, meaning when you trade BTC in futures markets on margin with > 5*, 10* leverage, you stand to lose all your BTC holdings.

 

Trading on leverage is not easy for majority of novice traders



Therefore, inexperienced traders should get proficient in spot trading before engaging to venture into margin trading. It is paramount that one trades very carefully when engaged in futures trading on margin.

One has to set a stop loss limit where one would sell off the borrowed BTCs used for trading before the price falls down further. An important goal here is to protect your BTC that you have given as collateral, if price is not moving in the profitable direction.

Also, most traders trade on leverage irrationally when BTC prices are climbing high, feeling that they can make more profits if they somehow trade by putting on to the market more BTCs which prompts them to borrow more BTCs and get themselves into over leveraged positions.

A smart trader will trade on leverage when the risk to reward ratio is high meaning, when BTC prices are corrected and are at a discount as there is more likelihood for BTC prices now to go upwards by experiencing a natural price rise.

 Conclusion


This time BTC prices did go really down below 40,000$, because a spree of liquidations happened with traders who were trading on the futures market on margin.

This deep fall of BTC’s price is due to manipulation of BTC prices by crypto whales that had fooled many novice retail investors to sell off their BTC holdings in panic.

You can read that article here.

https://www.publish0x.com/investing-and-trading/whales-influence-crypto-investors-to-panic-sell-so-they-can-xykgovn


Trading without strategy is bound to make you lose money, so please set your plans when trading. This means book profits, buy dips and such things, then over time you will only be in the green rather than the red with you having accumulated more profits in your trading game!!

Learn about these liquidations that brought BTC prices down here -

https://www.coindesk.com/bitcoin-plunge-40k-liquidations

 

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Greenchic
Greenchic

I love to write on things I am passionate about - environment, citizens activism, crypto and life in general. I am a cat enthusiast, nature lover. I am excited to engage at the Publish0x platform by reading and writing crypto and other content here.


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