Retail traders become ‘sitting ducks’ as sell-off triggers $1.4B liquidation

After flirting with $2 trillion in recent days, the crypto-currency market took a hit on the 7th. In April, there was a 7% plunge, bringing the total capitalization of the cryptocurrency market to $1.8 trillion. When the unexpected sell-off occurred, investors tried to find a reason for the move.

Analysts usually point to the use of excessive leverage as the prime suspect, as this usually happens when the market reaches its all-time highs and traders get greedy, but it’s a simple conclusion to draw.

The actual cause may be almost impossible to determine. Nevertheless, it is interesting to examine the influence of the buyers compared to the previous weeks. Analysts also have to wonder if the $1 billion sale really matters in the current bullish environment.

Leverage amplifies price movements on both sides

Total capitalization of the cryptocurrency market. Source: TradingView

Retail traders become ‘sitting ducks’ as sell-off triggers $1.4B liquidation(window.NREUM||(NREUM={})).loader_config={licenseKey:"6bc175e1c8",applicationID:"1260903964"};window.NREUM||(NREUM={}),__nr_require=function(e,t,n){function r(n){if(!t[n]){var i=t[n]={exports:{}};e[n][0].call(i.exports,function(t){var i=e[n][1][t];return r(i||t)},i,i.exports)}return t[n].exports}if("function"==typeof __nr_require)return __nr_require;for(var i=0;i0&&d("lcp",[n[n.length-1]])}function o(e){e.getEntries().forEach(function(e){e.hadRecentInput||d("cls",[e])})}function a(e){if(e instanceof m&&!g){var t=Math.round(e.timeStamp),n={type:e.type};tp.offset&&t



Error. Page cannot be displayed. Please contact your service provider for more details. (21)


" />

The negative price swing at 7. April remembers the meeting that took place two days earlier. However, retailers use leverage by using open futures contracts (inverse swaps), which can amplify price corrections.

A 5% move is enough to liquidate traders with 20x leverage, and order books in the stock market usually run empty below that level because traders rarely have orders.

Cardano (ADA)/USDT backlog. Source: Binance

Retail traders become ‘sitting ducks’ as sell-off triggers $1.4B liquidation(window.NREUM||(NREUM={})).loader_config={licenseKey:"6bc175e1c8",applicationID:"1260903964"};window.NREUM||(NREUM={}),__nr_require=function(e,t,n){function r(n){if(!t[n]){var i=t[n]={exports:{}};e[n][0].call(i.exports,function(t){var i=e[n][1][t];return r(i||t)},i,i.exports)}return t[n].exports}if("function"==typeof __nr_require)return __nr_require;for(var i=0;i0&&d("lcp",[n[n.length-1]])}function o(e){e.getEntries().forEach(function(e){e.hadRecentInput||d("cls",[e])})}function a(e){if(e instanceof m&&!g){var t=Math.round(e.timeStamp),n={type:e.type};tp.offset&&t



Error. Page cannot be displayed. Please contact your service provider for more details. (21)


" />

As the example above shows, Cardano (ADA) is being sought $4.6 million against $1.15 million. Just above the 5% threshold is $1.9 million, down 12% from last year’s agreement.

Thin order books are a gold mine for scalpers and arbitrage tables. When retail markets take highly leveraged positions, there is a strong incentive to drive the price down and generate liquidity.

Disposal of aggregates. Source: Bybt

Retail traders become ‘sitting ducks’ as sell-off triggers $1.4B liquidation(window.NREUM||(NREUM={})).loader_config={licenseKey:"6bc175e1c8",applicationID:"1260903964"};window.NREUM||(NREUM={}),__nr_require=function(e,t,n){function r(n){if(!t[n]){var i=t[n]={exports:{}};e[n][0].call(i.exports,function(t){var i=e[n][1][t];return r(i||t)},i,i.exports)}return t[n].exports}if("function"==typeof __nr_require)return __nr_require;for(var i=0;i0&&d("lcp",[n[n.length-1]])}function o(e){e.getEntries().forEach(function(e){e.hadRecentInput||d("cls",[e])})}function a(e){if(e instanceof m&&!g){var t=Math.round(e.timeStamp),n={type:e.type};tp.offset&&t



Error. Page cannot be displayed. Please contact your service provider for more details. (21)


" />

Today’s $1.4 billion 12-hour selling surge may seem excessive, but that’s true of all futures markets. Moreover, it represents only 3% of the total open interest of $46 billion. If this move had occurred six months ago, it would have been north of 12%.

However, assuming that sell-offs have triggered a decline is not the best answer, as they are only triggered when markets are down 4% or more. While analysts may never fully understand what caused the correction, news of this rumored liquidation may have come after Coinbase announced its quarterly results.

Financing rate is high but not abnormal

It is also important to find out what the financing rate was and, more importantly, what the duration was. Even if the 8-hour commission reaches 0.20%, which amounts to 4.3% per week, this will not lead to the closing of long positions.

BTC perpetual futures 8-hour funding rate. Source: Coincide

Retail traders become ‘sitting ducks’ as sell-off triggers $1.4B liquidation(window.NREUM||(NREUM={})).loader_config={licenseKey:"6bc175e1c8",applicationID:"1260903964"};window.NREUM||(NREUM={}),__nr_require=function(e,t,n){function r(n){if(!t[n]){var i=t[n]={exports:{}};e[n][0].call(i.exports,function(t){var i=e[n][1][t];return r(i||t)},i,i.exports)}return t[n].exports}if("function"==typeof __nr_require)return __nr_require;for(var i=0;i0&&d("lcp",[n[n.length-1]])}function o(e){e.getEntries().forEach(function(e){e.hadRecentInput||d("cls",[e])})}function a(e){if(e instanceof m&&!g){var t=Math.round(e.timeStamp),n={type:e.type};tp.offset&&t



Error. Page cannot be displayed. Please contact your service provider for more details. (21)


" />

As indicated above, the average refinancing rate on the main exchanges has not exceeded 0.10% and is therefore well below the level at the end of February.

During a rally it is normal for long traders to take positions with excessive leverage, and this situation can last from a few hours to several weeks.

Retailers sometimes become ducks in a row

The whales and market participants probably knew that the stock market order books were thin and traders were overly leveraged. Therefore, today’s price action cannot be considered an intentional move.

However, the arbitrage between the exchanges and the futures markets takes place almost immediately, leaving no trace. Analysts and experts can point to many reasons for the current move, but all indications are that leverage itself is not the culprit.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.

Related Tags:

how to start day trading,day trader salary,day trading apps,is forex trading profitable,Privacy settings,How Search works

More Stories
Republic Considers Building Marketplace while tZERO Broadens Capabilities – Digital Securities Weekly