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19 April 2021

Retail traders become 'sitting ducks' as sell-off triggers $1.4B liquidation

Retail traders become 'sitting ducks' as sell-off triggers $1.4B liquidation


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The negative price swing on April 7 resembles the rally that took place two days earlier.

However, retail traders deploy leverage by using perpetual futures contracts (inverse swaps), which can amplify price corrections.

A 5% move is enough to liquidate traders using 20x leverage, and exchange order books tend to become thin below that level, as traders seldomly have orders in place.

Had this movement taken place some six months ago, the figure would have been north of 12%.

Although analysts may never fully understand what has triggered the correction, a "buy the rumor, sell the news" event could have taken place after Coinbase presented its quarterly earnings.

Whales and market makers likely knew that the exchange order books were thin and that retail traders were excessively leveraged.

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