The truth and risks behind the Bitcoin contract explosion

In the world of digital currency, Bitcoin is undoubtedly the most dazzling star. However, with the sharp fluctuations in its price, the risks of contract trading have gradually emerged, especially the frequent occurrence of explosions, which has made countless investors feel uneasy. How much loss does a Bitcoin contract explosion have? Will a Bitcoin explosion be forced to close? These issues are not only related to the vital interests of investors, but also a profound reflection on the health of the entire crypto market.

Bitcoin contract trading is a highly leveraged investment method in which investors increase their trading scale by borrowing funds. Although this can make huge profits when prices rise, losses will be magnified once the market reverses. Especially under extreme market conditions, sharp price fluctuations in a short period of time may lead to explosions, and investors' funds will disappear in an instant. According to data, in May 2022, as the price of Bitcoin fell from nearly $60,000 to $30,000, more than $10 billion in contracts worldwide were blown up, and investors' losses were shocking.

When the price of Bitcoin falls sharply, many exchanges will activate the forced liquidation mechanism. This means that if the investor's margin is not enough to support his position, the exchange will automatically close his position to protect the interests of the borrower and lender. Forced liquidation often occurs because the investor fails to add margin in time, and the market fluctuates violently in an instant. Therefore, forced liquidation is not only a test of the investor's risk management ability, but also a strict requirement for market liquidity and exchange systems.

In contract trading, investors need to always pay attention to their positions and margin levels. Especially in a highly volatile market such as Bitcoin, it is crucial to maintain sufficient margin. Take an investor as an example. He opened a 10x leveraged long contract when the price of Bitcoin was $50,000. However, when the price plunged to $45,000 in just a few hours, his margin was quickly exhausted and eventually forced to close, resulting in heavy losses. This situation is not uncommon in the crypto market and has brought profound lessons to investors.

When it comes to Bitcoin contract explosions, market psychological factors cannot be ignored. Investors tend to blindly chase prices when they rise, and panic sell when they fall. This emotional fluctuation will exacerbate the market's violent fluctuations and further increase the risk of explosions. For example, in April 2021, as the price of Bitcoin rose rapidly, many investors flocked in. However, what followed was a sharp drop in May, causing a large number of investors to be liquidated in panic. The volatility of market psychology caused many investors to suffer huge losses in a short period of time.

In order to reduce the risk of liquidation, investors need to establish a reasonable risk management strategy. For example, setting stop loss positions, reasonably controlling leverage multiples, and diversifying investments are all effective means. In addition, investors should also be sensitive to market dynamics and adjust their investment strategies in a timely manner. Take a well-known investor as an example. After experiencing several liquidations, he gradually realized the importance of risk management, began to learn technical analysis and market trend forecasting, and finally successfully avoided the subsequent liquidation risks.

In Bitcoin contract trading, it is equally important to choose a suitable trading platform. Different exchanges have different definitions of liquidation and forced liquidation mechanisms. Some exchanges provide more flexible margin management tools that allow investors to make adjustments when the market fluctuates, thereby reducing the possibility of forced liquidation. Therefore, choosing a reputable trading platform is of great significance to protecting the safety of investors' funds.

However, despite various measures, the risk of liquidation still exists. Investors must always be vigilant, especially when market sentiment is highly volatile. The particularity of the Bitcoin market determines the unpredictability of its risks, and any investor needs to have a clear understanding of this.

When summarizing the phenomenon of Bitcoin contract explosions, we cannot only focus on the amount of loss, but also reflect on the behavior of investors themselves and the operation mechanism of the market. Bitcoin price fluctuations are certainly an important factor affecting explosions, but many factors such as investor psychology, market liquidity, and exchange system cannot be ignored. Only by fully understanding these factors can investors survive in a complex market environment.

For those investors who want to enter Bitcoin contract trading, it is crucial to understand the basic principles of contract trading, the operation mechanism of the market, and the strategy of risk management. Don't just be attracted by high profits, but also look at potential risks rationally. Through continuous learning and practice, investors can find an investment method that suits them in the Bitcoin market, minimize risks, and achieve stable returns.

In this rapidly changing cryptocurrency market, knowledge and experience are the most powerful weapons for investors. By constantly learning market dynamics, improving risk management strategies, and choosing appropriate trading platforms, investors can not only protect the safety of their funds, but also find their own opportunities in a complex market environment. In the future, as the market continues to mature and supervision is gradually strengthened, Bitcoin contract trading will usher in a more standardized and secure development environment, and investors will be more confident to participate in this emerging investment field.

Finally, investing in Bitcoin contracts is not a simple way to get rich, but an adventure that requires wisdom and courage. Every explosion is a profound lesson, and every success is a recognition of one's own ability. In this challenging market, staying rational and learning and progressing are the only way to success. I hope that all investors can find their own direction in this volatile market and take their own investment path.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

Before answering this question, let me talk to you about what a margin call is. A margin call refers to a situation where the customer equity in an investor's margin account is negative under certain special conditions. When the market changes significantly, if most of the funds in the investor's margin account are occupied by trading margin, and the trading direction is opposite to the market trend, it is easy to have a margin call due to the leverage effect of margin trading. After understanding the margin call, let's get back to the point. How much will a Bitcoin contract lose if it is liquidated? Will a Bitcoin margin call be liquidated? Below, I will tell you in detail how much a Bitcoin contract loses if it is liquidated? Will a Bitcoin margin call be liquidated?

 How much will a Bitcoin contract lose if it is liquidated?

How much loss will be caused by the liquidation of Bitcoin contracts depends mainly on how much investors have invested. For example, the current price of Bitcoin is 18,000 US dollars:

1. Assume that you use 10,000 yuan to open a 20x leverage to go long

2. At the same time, open 3 (1 hour) put options on the exchange for hedging (cost of 200 US dollars)

The first one is that when Bitcoin rises by 5%, it rises by 900 US dollars

1. Go long with 20x leverage, the contract doubles, which means earning 10,000 yuan

2. Put options The principal of the option is lost, that is, 200 US dollars (1400 yuan)

3. 10000-1400=8600 yuan (net profit)

The second type, when Bitcoin falls by 5%, it falls to 900 US dollars

1. 20 times leverage to go long, the contract is liquidated, and the loss is 10,000 yuan

2. 3 put options profit 2700 US dollars, that is, 18900 yuan

3. 18900-10000-1400=7500 yuan (net profit)

 Will Bitcoin liquidation be forced?

When an investor encounters one of the following situations, the dealer will force the liquidation of his position:

1. Forced liquidation due to failure to fulfill margin call obligations

According to the exchange rules, futures trading implements a margin system, and a certain proportion of margin must be paid for each transaction. When the market changes unfavorably, in other words, the market reverses and changes in the opposite direction, members or customers should deposit additional margin according to the trading rules and contract agreements. If a member or customer fails to fulfill the margin call obligation within the required time, the exchange has the right to force liquidation of the member company, and the member company has the right to force liquidation of the customer's position.

2. Positions are too heavy and the position is blown up

Most of them occur in novice investors. Because they used to use simulated positions for trading, they are used to using heavy positions to obtain huge profits at one time. However, they do not know that real trading is not like simulated trading. Personal trading funds are limited, while the market of Bitcoin is unlimited. Therefore, using a large proportion of leverage to start with heavy positions has poor risk resistance and is too eager for quick success. If the market moves in the direction of trading, it will easily lead to position blowup and loss.

3. Frequent trading and being too impatient

Positions should not be too heavy, and the number of transactions should not be too many. Do not think that frequent entry and exit and decisive trading can increase the proportion of profits. The result is just the opposite. If investors are eager to make up for their losses, place casual orders, and place emotional orders, they will increase the odds and blow up the position unknowingly in the loss.

4. No stop loss

Stop loss is the biggest weapon for investors. If stop loss is strictly set for each transaction, investment risks can be effectively avoided and investment risks can be controlled within an acceptable range without direct position blowup. At the same time, setting is also a complex and repetitive process. In order to make stable profits, Xinyu believes that it is necessary to combine the stop loss position with one's position adjustment, and also with one's own operation cycle, and set the stop profit and stop loss according to the trend of the day's market. For example: the range of stop loss can be narrowed in the volatile market; vice versa.

Through the above introduction, I believe that everyone has already understood the question of how much loss will be caused by the liquidation of Bitcoin contracts. The editor of the currency circle kindly reminds investors that before trading Bitcoin contracts, you can first look at the 4-hour chart to determine the trend and direction; then look at the 1-hour chart, pay attention to the trend of the transition period, and judge the trend of the next period. Only in this way can you ensure that you will not make basic mistakes when trading Bitcoin contracts.