Category Archive : Trading

The Art of Liquidation: Part IV – The Invisible Tentacle of the Markets

Welcome to “The Art of Liquidation: Part IV”. In the last few episodes we learned how various crypto derivative exchanges handle extremely large liquidations, which are potential threats to the market. OKEx and Poloniex socialize the losses, Bitmex has an insurance fund that has become systemically relevant itself due to its sheer size. What is Kraken’s approach?

Maintenance Margin on Kraken

Let’s look at the liquidation model of the exchange “Kraken”. Unlike the exchanges previously examined, Kraken does not have a P2P margin model. It is not other users who borrow the funds but Kraken itself. If the maintenance margin falls below 40% the position will be liquidated automatically. At 80% there is a margin call and Kraken reserves the right to liquidate below 80% in extreme market situations.

Such extreme situations would be, for example, massive volatility, which is not uncommon on the crypto market. Since Kraken provides the funds itself and has to carry the losses, it is understandable that they operate a tight maintenance margin system. Otherwise large liquidations would be endangering Kraken itself.

The Instant Margining System

The risk for leveraged futures on the platform is managed via the so-called “Forced Liquidation” process in the “Instant Margining System“. If an extremely large position is liquidated, which bursts the Oder books, it is called “Unfilled Liquidation” and triggers the following: The Unfilled Liquidation is transferred to a “Liquidity Provider”. This is a market maker who has unlimited liquidity and can therefore handle liquidations of any size.

This is an emergency mechanism that only triggers after the order books have been emptied. According to Kraken, this happens on average every 10,000 hours, i.e. less than once a year (about every 420 days).

Conclusion

So we see Kraken is not organized like other platforms in a P2P manner. It provides leverage and handles large liquidations with extremely liquid market makers.

It makes sense that Kraken itself would set a limit on positions that would exceed even this extreme liquidity, but that would probably be extremely high sums (probably at least eight or nine digits). One could categorize the Kraken model as centralized liquidation, unlike the other exchanges.

Bitfinex Will Roll Out x100 Margin Trading

Bitfinex will roll out x100 margin trading for Bitcoin. In the whitepaper on Leo, Bitfinex’s own crypto currency, under the heading “Upcoming projects” there was already a hint that from June 2019 trading would be supported with a leverage of up to 1:100 for “selected customers”. Now Bitfinex’s CTO Paolo Ardoino has added to Twitter, the offer is obviously ready for launch.

So far, Bitfinex has limited itself to levers of up to 1:3.3. To the estimate: Who trades for instance Bitcoin (BTC) with lever 1:100, must shoot already with price movement of 1 per cent in the unexpected direction immediately capital or loses its employment.

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BTX500: Bitcoin from $8800 to $85,000 to $6 With Enabled x500 Leverage

Bitcoin leveraged trading is risky. Very risky. But what happens when there is an exchange enabling their customers to trade Bitcoin with x500? Well, BTX500 “tested” this and the results where pretty clear:

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As loomdart reported on Twitter the price there went from $8800 to $85,000 to $6 within a matter of minutes. BTX500 claims to be regulated and licensed in Australia and that funds held are fully ensured by Lloyd’s of London.

Even this is correct, to offer a x500 on Bitcoin is just plain crazy. We can just recommend to stay away from this exchange and all others that could be set up in the future offering leverages like this. It is mainly a trap for uneducated traders who are not aware of the risks like the following screenshot shows:

Suicide of Chinese Bitcoin Trader After Losing 2,000 BTC on x100 Leverage

A big story this week was the suicide of a Chinese Bitcoin trader who traded on x100 leverage and is assumed to lost 2,000 BTC through his trading according to 8btc. They reported that the trader, Hui Yi, lost this amount after going short. He was co-founder and CEO of the analysis platform BTE.TOP and died on the 5th June.

Measured in current prices this were around 16M$, leveraged by 100 times this is an insane magnified loss. At this leverage he was basically trading 200k Bitcoins, means +1% (while he was short) was enough to get him liquidated.

Exposed was his death by an ex-partner and there are speculations that Yi was not trading with his own money, but money from his company clients. There are also speculations about a faked death which we do not want to comment in any way. At this point our condolences to all relatives and people who were close to Hui Yi.

This story shows how important it is to know the risk when trading Bitcoin on leverage. To trade x100 is kind of irresponsible, even you are a professional trader.

Bitcoin Trading & Market Psychology

Emotions And High Volatility = Problem

The main problem with somebody who begins to trade in any asset-class is that there is no experience beforehand. No one is born the perfect trader; every successful one made a lot of mistakes and most of these mistakes are probably based on irrational actions caused by emotions.

This is a problem. Especially when you trade cryptocurrency markets like Bitcoin. Cryptocurrencies are, in perspective, a very new technology. Not only in general but in a technical way, it is different to anything available now, yet we still are seeing low adaptation and practical usage of the blockchain-technology. This paired with the fact that the market runs 24/7 means the emotional reactions of market participants are stronger than anywhere else.

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The Art of Liquidation: Part II – The Polo-$CLAM-Chowder

If an asset is very illiquid this can lead to great volatility. The order books are thin and medium or even small market orders move the market. Everybody who tried to accumulate microcaps before knows how difficult it is to build or dump a position that is bigger than the orderbooks. With microcaps already small buys or sells can lead to massive slippage. Shitcoin Margin Trading wih illiquid “shitcoins” is a recipe for deseaster.

Poloniex offers a peer-to-peer-system for margin-lending on its exchange. And it offers trading on margin for extremely illiquid tokens. This opens a possibility for whales to accumulate a bigger position of this shitcoin, short it with high leverage and then start dumping the coin to crash the price. Flash Crash and Haircut On the 26th of may the was an incident on Poloniex.

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Introduction to Technical Analysis Part II: S/R-Flips

How do you enter a trade safely? Every new trader knows the situation. He sees a green candle, goes long and price retraces. The new trader exits the trade but then price continues higher.

Price seems to interact with certain levels. It touches a level several times before and after passing it. Obviously this would be a good spot to enter a trade. What are these levels?

Support and Resistance

If a level stands out, like a swing high or a swing low, when price returns there, it usually reacts with that level. A level like that is called support (if price approaches from the top) or resistance (if price approaches from down below). If a level is touched more than once it becomes more and more obvious. Orders start piling up around that level and price will react more heavily if it returns. If a level is touched from one side multiple times these orders get eaten up every time price comes there and eventually all orders are gone and price will break through that support- or resistance-level.

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