The carnage in the crypto market has continued today, leading to nearly $300 million in liquidations in the futures sector.
When an investor opens a crypto futures contract, they have to first put forth some initial collateral, called the margin.
The advantage of leverage is that if the price of the crypto (which the contract is for) moves in the direction the investor bet on, then the profits are multitudes more than just the initial position’s gain alone.
However, the converse also holds true, if the price happens to move in the opposite direction, then losses are also magnified by the same amount as the leverage.
When a specific part of the initial margin is eaten up by these losses, the exchange forcefully closes the position. This is what a liquidation is.
Now, here is the data related to the futures liquidations in the crypto market over the past day:
As you can see in the above table, around $287 million in the crypto futures market was flushed over the past 24 hours.
Out of this, about $241 million worth of liquidations occurred in the last twelve hours alone. The past four hours also saw sizeable liquidations at almost $64 million.
The leverage flush over the last day involved nearly 80k futures positions, with 71% of them belonging to long traders.
This fact makes sense as a majority of the liquidations were triggered by the crypto market observing further carnage today.
Such large liquidations aren’t uncommon in the market. There are a couple of reasons behind this; the first is that most of the coins are highly volatile.
The other reason is that many derivatives exchanges offer options for quite large quantities of leverage, sometimes even 100x the initial position.
The high leverage combined with the volatile nature of crypto can make the futures market a risky zone for uninformed traders.
The below chart shows the trend in the price of the coin over the last five days.