- Bitcoin rose to $10,750 Monday morning a level first seen since its plunge below $10,000.
- Over $8 million in Bitcoin shorts have nee liquidated in the last 24-hours on BitMEX alone.
Following the plunge back below $10,000, Bitcoin may be making a recovery as it surpassed $10,700 Monday morning. Bitcoin rising has liquidated over $8 million in Bitcoin short positions in the last 24-hours on BitMEX alone, according to Cryptometer.io.
Bitcoin shorts allow traders to bet on Bitcoin’s price falling in the future. To short Bitcoin, traders sell Bitcoin at the current market price. Assuming the spot price falls, the trader then repurchases the same amount of Bitcoin for a lower price and nets the difference. In addition, some traders may also utilize leverage trading which comes with additional risks.
Leverage trading allows traders to trade with a far larger Bitcoin position. For example, to open a one Bitcoin position with 20x leverage, the trader only contributes 0.05 Bitcoin to the position and borrows the rest. Through this, traders can make trades with one whole Bitcoin and therefore amplify returns on the 0.05 Bitcoin by approximately 20x.
However, leverage trading comes with its own risks. While leverage trading amplifies returns, it also amplifies losses at the same rate. For example, with 20x leverage, a 5% move in the opposite direction may result in Bitcoin shorts being liquidated and the trader losing their entire initial contribution of 0.1 Bitcoin. Therefore, positions with large amounts of leverage may face liquidations during relatively minor price fluctuations.
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