Crypto Futures Speculators in China: 125× Leverage, $2 Billion Loss Overnight
More and more crypto speculators in China began to trade futures with high leverage. In this case, if the currency price rises by 1%, their assets can be doubled, on the contrary, if the price falls by 1%, they will lose their accounts.
This is a very high-risk game, the crypto space has become a dangerous casino, and the crypto exchange is the driving force behind it. The futures market is full of the myth of getting rich overnight, but in fact, 99.5% of individual investors will lose their accounts. And in the end, even the exchange itself is often not spared.
According to AICoin’s data, on the night of March 12, there was $2 billion capital loss in the crypto futures market, with the largest single amount of $10 million, and the average amount of each loss reached $51000.
In the crypto space, futures transactions have long been in place. In short, it’s a kind of futures trading.
Similar to the traditional futures market, there are two main ways of futures trading in the crypto space: one is to be long or short, and the player can make profits in both directions; the other is to add leverage, and the speculators can throw a sprat to catch a herring.
The first crypto exchanges to enter the futures market are OKEx and BitMEX. In the early years, they divided the Chinese and global futures markets. Subsequently, Huobi, Binance entered the futures market one after another.
“At present, the three exchanges, Huobi, Binance, and OKEx are fighting over each other, most of which are related to futures.” An exchange practitioner pointed out.
In 2018, two of the top 10 crypto exchanges in global trading volume launched futures trading. Today, eight of the top 10 crypto exchanges in global trading volume have launched futures trading.
Their leverage ratio is also increasing, even to a staggering level. Earlier, many crypto exchanges had 5×, 10×, or 20×leverage for futures trading. Today, some exchanges are already offering far more leverage ratio than that. For example, OKxE’s perpetual futures can provide up to 100× leverage, and Binance can provide up to 125× leverage.
The trading volume of futures trading is much larger than that of the spot market.
According to TokenInsight’s data, in January 2019, the volume of futures trading on the OKEx accounted for only 60%, but by October, it had risen to 81%. On March 30, the 24-hour trading volume of bitcoin was 2.2 billion Chinese yuan, while the futures trading volume of the same period was 28.5 billion Chinese yuan, 13 times the former.
The greed of speculators makes the exchange more and more diversified. And these patterns intensified the greed of the speculators.
Now, the financial derivatives tools in the crypto space directly improve the leverage ratio of the whole industry. The operation of the exchange itself is also facing great risks in front of the high leverage.
However, when the currency price dumps or pumps, the exchange may not be able to close its position in time, and the platform’s own assets will also be damaged. In other words, due to the sharp fluctuation of the currency price, the exchange has its own capital loss. Some players who had earned money were deducted by the exchange to make up for the loss.
In fact, each major exchange has a similar mechanism of” short position recovery “. However, the mechanism of Binance will give priority to the big earners who make the most money, while the mechanism of OKEx is that all profitable users share equally.