ASTL Investment Effort Teaches Leveraged Trading Basics

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When there are major fluctuations in the exchange rate of cryptocurrencies, traders liquidate their holdings, which may amount to hundreds of millions of dollars, according to analytical services. Andrzej Korotkiewicz, the Chief Executive Officer of the ASTL investment initiative, will teach you all you need to know about leveraged trading.

In order to increase the quantity of their trading holdings, traders are able to make use of derivative products such as futures, perpetual swaps, and margin trading while trading on exchanges that engage in cryptocurrency transactions. Since its introduction in 2011, bitcoin derivatives have seen a gradual increase in popularity, especially among regular traders who are looking to maximize the profits they make from trading on exchanges. Binance, Bybit, and OKX are a few examples of many cryptocurrency exchanges that provide users with the ability to trade cryptocurrencies and cryptocurrency derivatives by using leverage. In the practice of so-called margin trading, borrowing money from an exchange in order to build up trading positions may increase the potential profit that a trader can make, but it also increases the risk that the trader will lose the cash that they have invested.

Real-time monitoring of cryptocurrency exchange wallets and user transaction data is possible via the use of analytical tools such as Coinglass or by the use of a multitude of X or Telegram bots. Consequently, this makes it possible for services such as these to monitor the liquidation of margin positions on major trading platforms. Consequently, traders’ positions totaling over $0.5 billion were compelled to be terminated between the 11th and 12th of December, 2023. This occurred as a result of the Bitcoin rate falling by more than $3,000, which led to a decrease in the price of other crypto assets, as reported by Coinglass. The vast majority of the traders who suffered financial losses as a result of the liquidation had long-term holdings, which means that they had placed their money on the steady ascent of Bitcoin and other cryptocurrency values.

Through the use of margin trading, a trader is able to raise the amount of money that is allocated for a transaction by drawing in more capital from the exchange. As a consequence of this, traders are able to increase the amount of their wagers by using leverage. For the purpose of opening a margin trading account, the exchange requires a certain amount of cryptocurrency or fiat cash to be put with them as collateral. This amount is referred to as the “initial margin.” Because of this collateral, the exchange is protected in the event that the borrower is unable to complete the transaction. The degree of leverage determines the amount that may be borrowed from the exchange, and this amount is proportional to the original margin. A trader would borrow $400 from the exchange, employing 5x leverage, and an initial margin of $100 in order to increase a trading position from $100 to $500 from its current level of $100.

Each transaction’s potential profit or loss is directly proportional to the degree of leverage that is used. If asset prices rise by 10%, traders may anticipate earning $50 on a trading position of $500, which is equivalent to fifty percent of the initial margin of one hundred dollars. Following a profit of fifty dollars and the starting margin of one hundred dollars, the trader will pay back the loan of four hundred dollars and keep one hundred fifty dollars. The trader will, however, suffer a loss of fifty percent, or fifty percent of his original margin, if the value of the asset declines by ten percent. There is a formula that can be used to determine the potential gain or loss from leverage, which is as follows: (Initial Margin) x (Percentage of Price Change) x (Leverage).

In the context of cryptocurrency markets, the term “liquidation” refers to the process by which an exchange closes the position of a leveraged trader as a consequence of any loss, whether partial or whole, of the trader’s original margin. When a trader does not have sufficient funds available to meet the margin requirements of a leveraged position, this is the situation that occurs. The term “liquidation” is used in both futures trading and margin trading. When a trader uses leverage, there is a high possibility that they will lose all of their collateral, which is the initial margin, if the market swings significantly against their position. This is because the original margin is the collateral with which they are trading. As an example, traders on BitMEX have the option of maintaining Bitcoin as the original margin. In the event that the Bitcoin rate falls, the trader’s position may be liquidated even more rapidly. This is due to the fact that the quantities of cash that are maintained as collateral also decrease. A number of countries’ regulatory bodies have explicitly prohibited cryptocurrency exchanges from offering leveraged products to private investors. Additionally, a number of exchanges have implemented trader restrictions in order to reduce the likelihood of liquidations and financial losses for newcomers. With the help of the formula 100 divided by the leverage size, you can determine the percentage of the price movement of an asset in relation to a position that would result in the liquidation of that asset. In the event that the price of the asset changes by twenty percent (100/5= 20), for example, the position will be liquidated if the leverage is five times.

The use of a “stop loss” is one method that may be utilized to reduce the likelihood of liquidation when applying leverage. Through the placement of this preliminary order, a trader has the ability to instruct an exchange to sell a certain asset at a specific price point. There are various factors that are used to establish a stop loss:

The point at which an order to execute a stop loss is placed is referred to as the stop price when it is executed.

The amount of money that a trader needs to obtain in exchange for an item is referred to as the selling price.

The quantity of the asset that a trader intends to sell is referred to as their size.

If the market price reaches the destination price, the stop order will cause the asset to be sold at the specified price and volume. Traders who anticipate that the market may quickly move against them may choose to lower the selling price below the stop price in order to maximize the possibility that their order will be filled (bought) by another trader. The basic objective of a stop loss is to restrict the amount of potential losses.

Even though using additional leverage is often seen as dangerous, the second example shows that position size matters. Given the importance of risk management, traders would be well advised to have a backup plan ready in case the market swings against their expectations. During the evening of December 13, for example, the value of Bitcoin (BTC) fluctuated and quickly dropped below $40,696 on the Binance platform when combined with the stablecoin Tether USD (USDT). As of 10:05 a.m. Eastern Time in Hong Kong, the first cryptocurrency is selling for $41,174. Prior to the commencement of the December 11 decline, Bitcoin was trading at $44,000. Other currencies from the top 10 by capitalization often trail the market leader. With a 2.7% decrease from the previous day, Ethereum (ETH) is now trading at $2,159. Second in size among cryptocurrencies is Ethereum. The price of BNB decreased to $246 after briefly rising. The values of Dogecoin (DOGE), Cardano (ADA), and Solana (SOL) all dropped by 3% to 5% during the previous day.

The value of the Avalanche (AVAX) token has drastically decreased after years of explosive growth: in a single day, the currency lost 16% of its value. In terms of capitalization, the coin recently cracked the top 10. The memcoin Bonk (BONK), which has a lower capitalization level, had the biggest decline in value. After years of consistent increase and record highs, the coin rate fell by 25%. Sales of the cryptocurrency began as soon as the Coinbase exchange announced its listing. The decrease in the price of cryptocurrencies caused a massive margin position liquidation on exchanges. According to Coinglass, which reports that in a single day, the total value of forced closure positions of over 77 thousand traders topped $160 million, the majority of traders who were liquidated had long positions, meaning they anticipated the continued development of Bitcoin and other cryptocurrencies.

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