Liquidation of Short positions (Short) on Bitcoin futures on crypto exchanges
Daily liquidations of short positions (Short) on Bitcoin futures on crypto exchanges. Includes Binance, BitMEX, Bybit, FTX, HuobiOKEx. In this chart, the start of the day is 4 pm GMT.
Liquidating Short Positions in Bitcoin Futures: What is it and how does it work?
Crypto exchanges that offer futures trading can seem complicated, especially for newbies. However, understanding the concept of liquidating short positions in Bitcoin futures is an important step towards successful trading.
What is a short position?
A short position involves selling an asset (in this case Bitcoin) with the hope that it will become cheaper and then buying it at a lower price to make a profit. Simply put, you are betting that the price of Bitcoin will fall.
Futures are a contract obliging two parties to buy or sell a specific asset (Bitcoin) at a predetermined price in the future.
Liquidation
Liquidation Shorting occurs when the price of Bitcoin rises above a certain level (liquidation level) set by the exchange. The exchange automatically closes the short position to protect itself from potential losses.
How does this work?
Traders who open a short position must deposit collateral (margin) into their account. This margin provides a means to cover potential losses if the price of Bitcoin rises.
When the price of Bitcoin rises, the losses on the short position increase. If losses exceed the margin, the exchange will liquidate the short position. This means that the exchange automatically buys Bitcoin at the current market price to close the position.
Why is liquidation happening?
Liquidation of Short positions is necessary to protect the exchange from risks associated with unfavorable price movements. It also protects other market participants by preventing the price of Bitcoin from plummeting due to massive short covering.
Risks:
Liquidating short positions carries certain risks for traders. If the price of Bitcoin rises sharply, they could lose all their margin.
Conclusion:
Understanding the concept of short liquidation (Short) is key to successful trading Bitcoin futures. Traders should be aware of liquidation risk and take appropriate measures to minimize their losses.
Important to note:
- Liquidation of Short positions may result in rapid liquidation of positions, which may have a significant impact on the Bitcoin market.
- Liquidation occurs automatically, so traders have no control over it.
- Traders should have a clear understanding of the risks associated with futures trading before opening positions.
