How to Short Crypto on Binance
Binance cuts Bitcoin shorts, but it’s legal
Traders accused Binance of illegally closing short positions
In fact, there was an automatic deleveraging
Exchange References Binance Futures Trading Terms
Traders accused the cryptocurrency exchange of unfairly closing short positions in Bitcoin on Binance Futures, but in fact there was an automatic deleveraging.
After Bitcoin (BTC) plummeted from $ 9,500 to $ 8,100, Binance was suddenly accused of canceling their lucrative trades..
Trader AthenaBank wrote on May 10:
Deleveraging? Binance exits a short position after my investment has grown 7 times. What’s happening? What about my short position? BTC fell to $ 8000. Who will pay the difference? [translated from English]
However, closing short positions is systematic, and this process is called automatic deleveraging..
Automatic deleveraging and cancellation of good deals
In the futures market, traders use leveraged funds or trade with leverage in order to be able to maximize their profits. Binance, for example, allows trading with 125x leverage of the initial capital: if a user has $ 1000, then with 125x leverage he can trade $ 125,000.
The task of the cryptocurrency exchange is to find a buyer for each seller and set from.
In other words, if trader A wants to sell bitcoin at $ 9,500, the platform must find trader B who wants to buy BTC at the same price..
The problem arises in the event of a sharp rise or fall in bitcoin.
In a crash, traders rush to sell BTC, and as the price drops rapidly, an imbalance occurs in the order book. This leads to a cascading liquidation of positions and, potentially, to an even deeper collapse of the cryptocurrency. This situation arose on March 12, when the value of BTC on BitMEX plummeted to $ 3,600.
To maintain balance, the largest Bitcoin futures exchanges such as BitMEX and Binance Futures use an automatic deleveraging system. When the insurance fund is insufficient to cover liquidated positions, other transactions are canceled to cover the remaining liquidated positions.
Everything is fair
The Binance Futures Bitcoin futures contract specifies that when a trader’s account balance falls below 0, an insurance fund is used to cover losses. However, in exceptional cases with increased market volatility, the insurance fund cannot cope with losses, and to cover them, it is necessary to reduce open positions.
In this case, it is likely that high leverage deals will be canceled first. Traders who use 75-125x leverage are often among the top contenders for closing deals in abnormal market conditions.
In other words, a trader with a leverage of 85 will be the first in the queue for automatic deleveraging, then a client with a leverage of 10 may not reach the queue. At least, he is definitely much less at risk of getting into such a situation..
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