{"id":221401,"date":"2021-04-07T23:35:00","date_gmt":"2021-04-07T20:35:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/retail-traders-become-sitting-ducks-as-sell-off-triggers-1-4b-liquidation\/"},"modified":"2021-04-07T23:35:00","modified_gmt":"2021-04-07T20:35:00","slug":"retail-traders-become-sitting-ducks-as-sell-off-triggers-1-4b-liquidation","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/retail-traders-become-sitting-ducks-as-sell-off-triggers-1-4b-liquidation\/","title":{"rendered":"# Retail traders become &#8216;sitting ducks&#8217; as sell-off triggers $1.4B liquidation"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a26ea3cd2651\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a26ea3cd2651\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/retail-traders-become-sitting-ducks-as-sell-off-triggers-1-4b-liquidation\/#Leverage_amplifies_price_movements_on_both_sides\" >Leverage amplifies price movements on both sides<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/retail-traders-become-sitting-ducks-as-sell-off-triggers-1-4b-liquidation\/#The_funding_rate_is_high_but_not_abnormal\" >The funding rate is high but not abnormal<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/retail-traders-become-sitting-ducks-as-sell-off-triggers-1-4b-liquidation\/#Sometimes_retail_traders_turn_into_sitting_ducks\" >Sometimes retail traders turn into sitting ducks<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Retail traders become &#8216;sitting ducks&#8217; as sell-off triggers $1.4B liquidation <\/strong>&#8221;<\/p>\n<div class=\"post-content\" data-v-5a136f3a>After flirting with a $2 trillion market capitalization for the last couple of days, the cryptocurrency market took a 7% hit on April 7, dropping the total crypto market cap to $1.8 trillion. As the unexpected sell-off took place, investors scrambled to find a reason to explain the move.<\/p>\n<p>Analysts typically identify the use of excessive leverage as the prime suspect, as this usually occurs as the market reaches an all-time high and traders get greedy, but this is an easy conclusion to reach. <\/p>\n<p>The actual cause could be near impossible to determine. Still, a starting place is looking at how high buyers&#8217; leverage was compared with the previous weeks. Analysts must also question whether a $1 billion liquidation is even significant in the current bullish environment.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Leverage_amplifies_price_movements_on_both_sides\"><\/span>Leverage amplifies price movements on both sides<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-04\/b284d6de-5beb-40e1-9621-aa14a34b7b4e.png\"><figcaption style=\"text-align: center;\"><em>Total cryptocurrency market capitalization. Source: TradingView<\/em><\/figcaption><\/figure>\n<p>The negative price swing on April 7 resembles the rally that took place two days earlier. However, retail traders deploy leverage by using perpetual futures contracts (inverse swaps), which can amplify price corrections.<\/p>\n<p>A 5% move is enough to liquidate traders using 20x leverage, and exchange order books tend to become thin below that level, as traders seldomly have orders in place.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-04\/11a0a721-cb91-4658-8fa5-260531a672ea.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>ADA)USDT order book. Source: Binance<\/em><\/figcaption><\/figure>\n<p>As shown above, there is $4.6 million worth of bids down to $1.15 for Cardano&#8217;s ADA\u00a0in the above example. Behind the 5% threshold, there&#8217;s only $1.9 million down to $1.06, or 12% below last trade. <\/p>\n<p>Thin order books are a gold mine for scalpers and arbitrage desks. Once retail markets enter highly leveraged positions, there are multiple incentives to push down the price and trigger liquidations.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-04\/1314fe89-8f85-4533-8e42-e159713e1cf0.png\"><figcaption style=\"text-align: center;\"><em>Aggregate liquidations. Source: Bybt<\/em><\/figcaption><\/figure>\n<p>Today&#8217;s 12-hour, $1.4 billion liquidation might seem excessive, but this aggregates the entire futures markets. Moreover, this represents a mere 3% of the total $46 billion in open interest. Had this movement taken place some six months ago, the figure would have been north of 12%.<\/p>\n<p>However, implying that liquidations triggered the drop is not the best answer, as those are only triggered when markets drop 4% or more. Although analysts may never fully understand what has triggered the correction, a &#8220;buy the rumor, sell the <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">news<\/a>&#8221; event could have taken place after Coinbase presented its quarterly earnings.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_funding_rate_is_high_but_not_abnormal\"><\/span>The funding rate is high but not abnormal<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>It&#8217;s also important to review how high the funding rate was and, more importantly, for how long. Even if the eight-hour fee reaches 0.20%, equivalent to 4.3% per week, this will not force longs to close positions.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-04\/2bb30c59-b18f-49bd-9234-8939bd4d9c23.png\"><figcaption style=\"text-align: center;\"><em>BTC perpetual futures 8-hour funding rate. Source: Coinalyze<\/em><\/figcaption><\/figure>\n<p>As shown above, the average funding rate across top exchanges did not rise above 0.10%, which is substantially lower than the late February levels. <\/p>\n<p>It is natural during rallies for long traders to enter excessively leveraged positions, and this situation can last from a couple of hours to weeks.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Sometimes_retail_traders_turn_into_sitting_ducks\"><\/span>Sometimes retail traders turn into sitting ducks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Whales and market makers likely knew that the exchange order books were thin and that retail traders were excessively leveraged. Thus, one cannot discard today&#8217;s price action being a premeditated maneuver. <\/p>\n<p>However, arbitrage between exchanges and futures markets h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ens almost instantly, so no trail is left. Analysts and pundits might pinpoint numerous reasons for today&#8217;s move, but the available data suggests that leverage itself isn&#8217;t to blame.<\/p>\n<p><em>The views and opinions expressed here are solely those of the <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/twitter.com\/noshitcoins\"><em>author<\/em><\/a><em> and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.<\/em><\/p>\n<p><template data-name=\"subscription_form\" data-type=\"markets_outlook\"><\/template><\/div>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more News articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/retail-traders-become-sitting-ducks-as-sell-off-triggers-1-4b-liquidation\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Retail traders become &#8216;sitting ducks&#8217; as sell-off triggers $1.4B liquidation &#8221; After flirting with a $2 trillion market capitalization for the last couple of days, the cryptocurrency market took a 7% hit on April 7, dropping the total crypto market cap to $1.8 trillion. As the unexpected sell-off took place, investors scrambled to find&#8230;<\/p>\n","protected":false},"author":1,"featured_media":221402,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDQvNGY1ZjcxMDQtMzRkMC00NzE1LWJjMDktZWI1MDZkNTY5YTU1LmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,74972,74937,74982,74863,74860,75012,75719,74939,73785],"class_list":["post-221401","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-bitcoin-futures","tag-bitcoin-price","tag-btc-markets","tag-cryptocurrencies","tag-cryptocurrency-exchange","tag-derivatives","tag-funding","tag-market-analysis","tag-markets"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/221401","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=221401"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/221401\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/221402"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=221401"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=221401"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=221401"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}