Leverage traders beware these markets can be treacherous even if the fundamentals are smiling at your assets. The problem, or perhaps we should say danger if you are trading on leverage is that financial markets are awash with central bank cash, and with few good investment opportunities available even the good buys are experiencing bouts of air pockets.
“Leverage traders beware these markets can be treacherous even if the fundamentals are smiling at your assets”
WEALTH TRAINING COMPANY
Leverage traders beware, if you are trading these markets on leverage, particularly cryptocurrencies we would steer clear from leverage
The recent cryptocurrency sell-off, whales’ profit-taking, was short and sharp with approximately 10% wiped off a two trillion USD market in 24 hours, that is 200B USD. The sharp drawdown was made worse due to retail investors piling into the market with high leverage.
Unless you are a member of the small club, the cartel, we recommend investors keep away from leverage trading, particularly in these volatile markets. The temptation to trade long with leverage when the price trajectory is upwards is obvious. But in periods of high volatility, particularly in the crypto market, it is not worth the risk.
“The recent cryptocurrency sell-off, whales’ profit-taking, was short and sharp with approximately 10% wiped off a two trillion USD market in 24 hours, that is 200B USD”
WEALTH TRAINING COMPANY
Leveraged traders triggered the recent cryptocurrency selloff because there is a lot of retail money, which is also leveraged
“$4 billion of liquidations that happened in a short period of time… That’s mostly leveraged offshore in places like FTX and Binance.” said crypto billionaire Mike Novogratz.
“by taking a leverage position in the asset, the trader is also more exposed to risks if the price moves against the trader’s position” – Wealth Training Company
Why do leveraged traders increase market volatility?
Bullish sentiment triggers greed. Every investor awake and his dog has now realized that cryptocurrencies are part of the long wave of innovation. As we write this piece, Ukraine has just announced that it will make Bitcoin legal tender. In September, El Salvador was the first country to make Bitcoin legal tender. So, investors, traders think the easiest way to make a fortune is to borrow money and invest in Bitcoin, or other cryptocurrencies.
Leveraged traders increase their exposure to the market by allowing them to pay less than the total amount of the investment
But by taking a leverage position in the asset, the trader is also more exposed to risks if the price moves against the trader’s position.
Leveraged traders are vulnerable to margin calls, a demand by a broker that an investor deposits further cash or securities to cover possible losses
So, if the trader is unable to meet margin calls, his position is automatically liquidated. So, the recent flash crash in cryptocurrencies was caused by a wave of leveraged traders forced to sell their positions.