Data shows the crypto futures market has observed more than $500 million in liquidations as Bitcoin has surged above the $24.5k mark.
Crypto Futures Market Has Seen A Flush Of $510 Million In Last 24 Hours
In case anyone is unaware of what a “liquidation” is, it’s best to get a brief understanding of how margin trading on derivatives exchanges works.
When an investor opens a crypto futures trading contract, they have to first put forth some initial collateral, called the margin (which could be both in USD or in a coin like Bitcoin).
Against this margin, holders can choose to take on “leverage,” which is a loan amount often many times the initial position.
The benefit of this leverage is that if the price of the asset the contract is for ends up moving in the direction the user bet on, the profits are as many times more as the leverage.
However, it’s also true that any losses suffered will also be magnified by the same factor as the leverage. When such losses pile up and eat away a specific portion of the margin, the exchange forcibly closes the position.
This is precisely what a liquidation is. Below is the data for the liquidations in the crypto futures market over the last 24 hours.
Looks like the cryptocurrency market has seen a large amount of liquidations today | Source: CoinGlass
As you can see above, a little more than $510 million got flushed from the crypto futures market during the past day.
Almost 80k traders were involved in this flush, and around $216M of the total liquidations took place during the last twelve hours alone.
More than 60% of the liquidations came from short contracts, a trend that makes sense as an uplift in the price of Bitcoin and other coins was behind the majority of the flush.
Massive liquidation events like today’s aren’t particularly uncommon in the crypto market. The reasons behind that are high volatility among most coins and easy access to huge amounts of leverage (many exchanges offer even 100x the initial position).
Because of these factors, uninformed margin trading in the cryptocurrency sector can prove to be quite risky.
At the time of writing, Bitcoin’s price floats around $24.7k, up 7% in the past week. Over the last month, the crypto has gained 18% in value.
The below chart shows the trend in the price of the coin over the last five days.
The value of the crypto seems to have spiked up during the last couple of days | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, chart from TradingView.com