be warned that trading on margin is a very easy way to lose alot of money really quickly:) finex' margin isn't that high, but it can still wreck you very easily because of the bigger swings bitcoin can make (like the $ drop 2 weeks ago would mean your money is gone). As Bitcoin trading has developed, there have been more and more offerings of margin trading by exchanges, allowing people to borrow value to trade with, to amplify profits (or losses) before repaying the loan at a later date. Many traders use this to make different strategies more viable, such as . Bitcoin making airwaves. Cuban’s sentiments show the way Bitcoin is no longer an asset that is in oblivion in the eyes of many investors. Moreover, analysis from leading companies like Bloomberg suggests that Bitcoin price could surge past $20, this year, by doubling an all-time high of $14, recorded last year.
Reddit margin trading bitcoinMargin trading and exchange manipulation : BitcoinMarkets
The squeeze was certainly a risk that I overlooked in my own trading, but I was fortunate enough not to have any open positions at the time. Short squeezes are a reality that people have to watch out for when trading any asset although not often on this scale.
I'm hoping to address some of the issues I see in a post that's been going around a lot recently, which claimed that exchanges themselves were involved in stop-loss hunting to try to "extract a higher market fee" from traders when they get liquidated. However, by definition, each trade has a market maker and a market taker, meaning that the exchange will get the same fee per volume either way assuming no tiered fee structure , as one side will always be paying the taker fee.
While there is a potential for an exchange be using margin calls as a means to increase their total trading volume, it seems like a rather roundabout method to try to extract relatively small value while potentially driving a way a significant portion of their clients.
Surely an exchange would look to boost revenue through other means, such as new services and trading pairs before looking towards market manipulation on such a scale. Exchanges themselves also aren't brokers, they are the platform to allow different parties to trade, rather than being the market maker of each trade. Instead, stop-loss hunting is an activity of institutions or "whales", who make a profit by accumulating a position at a lower price before pushing the market into a short squeeze and selling into the margin cascade.
This requires an entity to be tactically building up an exposure before shifting the market in their favour. While it isn't impossible that the operators of exchanges are involved in stop-loss hunting as part of a separate scheme, the exchange itself and its mechanisms of liquidation stands to make little profit on such action with the potential to drive away a lot of customers.
It makes little sense for an exchange itself to be involved, as the financial incentives don't align. I will do my best to give unbiased, objective analysis, but I can make no promises about my accuracy. All posts are based on my personal opinions and ideas and do not constitute professional financial investment advice. Really smart one though.
Its what the american media has been doing for 10 years now regarding to politics. Both longs and shorts are bets on the price moving up or down and they have a "liquidation price" at which they get liquidated by the exchange, essentially the exchange gets the entire stack they bet with and extracts a high market fee multiplied by the leverage.
When there are lots of overleveraged shorts, an exchange can pump the price with bots briefly and collect the short position. Same with longs but in reverse, a quick burst of selling pressure. I apologise if I misinterpreted this passage, but it seemed to imply that the exchange collected the positions in some way. In terms of trading fees from market orders, the exchange gets the exact same amount of money either way, as there is always a market maker and a market taker.
In the case of a forced liquidation the trader has to be the market taker and someone else the market maker. However, in the case of limit order, you would simply have another party being the market taker in the trade, so the same total fees. In terms of trading fees from market orders, the exchange gets the exact same amount of money either way. Well if we go alone with his narrative in terms of manipulation he is saying the exchanges push price around to generate a spike in volume -- volume generates more trading fees overall for the exchange.
Maybe he is also fairly new to BTC trading and this is the first consolidation period he has experienced -- things like this are nothing new and have been going on for years long before BitMEX of OKEX were even around. Circuit breakers in Equities are present for this very reason.
This is, you could say, a disadvantage of decentralisation. I'm curious what others think of as a solution to prevent manipulation. I guess one thing to do is simply stick to normal trading without margin. An exchange is the opposite of decentralization. These are just shitty exchanges that can't be trusted, despite all the trust traders put in them to handle the trading of their trustless securities. I meant non regulation of trades.
Brokers have to follow regulations and those regulations are there to protect the retail investors from whale manipulations. But you said 'decentralization' misleading others. I cringed but this is bitcoin markets a lot of Crap and hate spewed against the principles of freedom and bitcoin.
I guess it was just an honest mistake. Trading on margin is fine as long as there is a clear distinction from investing. In trading you should always have a clear stop loss so that you don't get caught out by these kinds of events. Margin can be a great tool to allow scalping or other types of trading to be viable, but risk management is always key. Circuit breakers do seem to be the most simple way to avoid this level of cascade, although greater market liquidity would also help dampen the effect as exchanges mature.
The biggest enemy of a stop loss is the most amazing thing about a cryptocurrency, volatility. Most margin traders would have experienced this. A good entry could quickly go the other way before it starts to go the planned direction. High volatility tends to stop a trade way too often. In Equities the volatilities are way less and a stop loss works well. But yes, I agree its far better to be stopped out than get margin liquidated. I'd seen some interesting strategies on hedging through margin trading.
Could be the right approach to something so volatile. It partially depends on your strategies, but the volatility of such a new market is definitely a blessing and a curse. Even with equities, NYSE and Nasdaq got rid of stop orders because of their potential effect on the market during volatile periods, and I think also because there were too many investors who failed to understand they were not guaranteed their stop price.
Very true. I used bitstamp out of habit, as I use it for that very reason in my usual daily analysis. I am glad someone took the time to write this all out -- I responded to that original blog post as well -- here is what I had to say which is on the same lines as what you have said:. Consistently Declining Volume: This leads to lower total fee revenue for exchanges, and an incentive to manipulate the price in order to earn revenue through liquidations rather than trading fees.
Yes the overall volume has been declining -- this is not something new or different than what happens after parabolic moves and we go into a period of consolidation. They will experience a reduction in trading fee revenue but that doesn't mean it is a binary condition that they need to do something illegal to change that -- they will look to expand other alt markets or maybe even buy a CFD forex exchange or add pairs themselves in other markets if it gets really bad.
Exponential Increase in Leveraged Positions: Both leveraged shorts and leveraged longs are at or near record levels. Shorts especially have gone from 8K outstanding in January to 33K right now, a whole tripling in outstanding positions. They may even change styles to more of a scalper then a trend trader and utilize leverage that way. Essentially, the exchange gets the entire stack they bet with and extracts a high market fee multiplied by the leverage.
I might add that your liquidation price isn't some complete mystery price as they give you an estimated liquidation price that is usually quite accurate. So at no point is the exchange itself "pocketing" the remaining collateral to count as profits for the exchange -- it just goes to a pooled insurance fund that is updated daily.
Edit: To be fair one criticism you could bring is that the liquidations aren't transparent enough to know what is the actual remaining collateral of each liquidated position -- there is one daily ledger entry of the collateral collected for that particular day which is really a bundle of s of liquidations so it hard to say if for example one liquidation had 2 BTC remaining collateral and BitMex or OKEX are only reporting 1.
I actually wrote about this very criticism a couple years ago now. I see this whole leverage trading as pure gambling. You can invest in a platform or product now a days with faith it will eventually increase in value.
However pretending to be able to call a top and bottom in a certain time period is purely gambling. A lot of leverage traders will lose their bags and look back and wish they hodled. The system is set up where the whales or institutions can manipulate the market legally while the regular joe with a gambling problem will suffer. If you can't see how bad an idea leverage trading is, then you have it coming.
There are enough bad actors in this space, the whole idea is to remove power from the institutions and gov, not gift wrap them your gains It's easier for them than taxes. Then you don't understand trading and TA -- it is about setups, risk management, trade sizing, targets, stops. Trading can also be a supplement to hodling -- you can lock in gains, hedge, accumulate more coins.
All markets from the beginning of time and in the future will be manipulated in some form -- adapt and trade accordingly -- manipulation has a tradable pattern as well. I have traded for over 10 years including listed futures and options and have been trading BTC on margin and futures for 5 years.
It certainly is not an easy profession and people shouldn't expect to immediately be able to be consistently profitable -- I don't wake up expecting I can perform successful brain surgery so people shouldn't assume a profession like trading is any different. Also leverage trading is not inherently good or bad -- it is a tool and it can be misused just like a hammer can built a house or used to harm someone. To me your post is one I have seen trotted out s of times of someone who tried trading, lost money and rather than accept the loss and that you don't possess the skills or experience to trade successfully decided that it has to be because "it is all manipulated" -- your fragile ego can't accept that you lost money and instead needs to deflect and make excuses that isn't wasn't your lack of abilities it was some bogeyman and you were just a victim in all this.
Been trading successfully since Lock in gains regularly and learned fast about taking emotion out of the equation. However, I refuse to pretend TA has any real world value in crypto and therefore makes leverage purely gambling, to think otherwise is denial. If you had really paid attention you'd see my point is it's safer to lock in gains by trading and cost averaging opposed to risking getting liquidated. By all means do what works for you.. I just want any new traders to realize that leverge trading is a complete gamble.
You aren't a robot so human emotion is a factor. No-- if you are going to begin trading you should start on high leverage and establish good risk management there with a small amount of capital at risk -- the problem is many people start on no leverage and actually develop loose or bad risk management habits that they can get away with on low leverage but blow up on higher leverage.
So start with a very small amount but on high leverage to expedite the learning process. I have said this many times before it is very similar to those that grow up playing hold'em poker then move to omaha poker -- omaha seems to be very similar to hold'em but with 4 cards instead of 2 but in reality is an entirely different game and the hand value is entirely different so those used to playing hold'em will overvalue their hands in omaha and get rekt quickly -- same applies those that develop poor or lax habits on no leverage then suddenly move to higher leverage.
Appreciate the thorough explanation and analysis! This is the sort of analysis and educational content I signed up for :.
I want to help the community by dispelling some of the misinformation I've seen floating around. Comment like yours drives away the enlightened. I am sick and tired of tons of shitposts by idiots not understanding anything and seeing conspiracy everywhere. Stand to make little profit? If an entity can lend fake money and liquidate real bitcoins they would make insane money. They could recover a insolvent ledger even. Point to another security that has evolved these sorts of price movements?
Must be lots of examples right? And BTC only started this square wave patterns relatively recently. The liquidation mechanism itself stands to gain little from such an event, as it has to close a user's position into the market to avoid negative balance.
This is the same market as everyone else and, in the case of Bitfinex, the exchange never even takes on the position. That being said, if we're looking at whale groups that can take on positions I covered this in the original post but edited it out as I misinterpreted the original article , they can indeed stand to gain a lot from margin cascades. However, the exchange liquidation mechanism is not the one that stands to gain from this.
Instead, it would be a separate entity building a position at lower prices before selling into a margin cascade. Unlike traditional currencies such as dollars, bitcoins are issued and managed without any central authority whatsoever: there is no government, company, or bank in charge of Bitcoin.
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Margin Trading on Coinbase Pro self. I've been HODLing for a while. Now thinking of other ways to increase my stack. I thought of borrowing and trading on margin and using the appreciation in value to pay off the debt. Has anyone used margin trading before and can someone give me a primer on how to trade?
I've set aside some money which I am willing to lose on this. The opportunity to profit big time is quite big so I want to give it a shot.
Other option is to margin trade on Binance. The biggest thing is, really, manage your per-trade risk. Learn to define your risk and then size your position appropriately. Don't listen to the fools who talk about leverage around here and don't know the first thing about it. Try using LNMarkets. Learn the thrill of seeing a smallish upward move put you up nicely at 5X. And then learn the agony of seeing a tiny drop cause you to get liquidated doing 50X.