Leverage questions

[dalack]

I had a few questions for you guys about leverage and how it effects the market

Do sites like Bybit loan you crypto with the ability to leverage?

Say I put in a long order to 5x 1btc at 48k and it goes to 60k and I sell, whoever loaned me the btc loses equity of 12k.

Is this correct?

If this is correct what stops sites from trading against their customers like bitmex has admitted to?

I know sites say they make their money on fees but its would seem way easier money to liquid high leveraged trades.

what are your thoughts on this?

Thanks
D

[mrcryptocurrency]

There is a question for me too
We give money through leverage, which is the money of others
But where do they get the multiplier profit?
But in general, I do not use much leverage
I use a maximum of 30 levers

[Oshosondy]

They are actually making profit, if you go for 2x leverage with 1 BTC, that means you can use 2 BTC to trade. The liquidation price will increase, if the price of bitcoin is $50000, you will have $100000, but if the price get to $25000, your money will be liquidated. If you do not leverage, you will still have $25000 which is 0.5 BTC at bitcoin price of $25000. Part of your money that was liquidated will be used to pay the lenders.

[Tytanowy Janusz]

Say I put in a long order to 5x 1btc at 48k and it goes to 60k and I sell, whoever loaned me the btc loses equity of 12k.

Is this correct?

Wrong. In theory, when you go long on BTC no one is lending you BTC. You get a loan in $$ and you buy BTC on the market.Sell and give back dollars.
When you go short on BTC someone is lending you BTC, you sell to $$, buy back whenever you want and give back BTC.

Someone who sold you BTC low lost 12k. Not someone who borrowed you money.

Whatever you do on the market, exchange is never a counterparty. Its always the other trader. The role of the stock exchange is to provide appropriate conditions other traders with to make transactions. Not to participate in the transaction and take currency risk.

[mu_enrico]

Whatever you do on the market, exchange is never a counterparty. Its always the other trader. The role of the stock exchange is to provide appropriate conditions other traders with to make transactions. Not to participate in the transaction and take currency risk.

Note that this is the ideal/best practice, but when we talk about crypto exchange, there are some accusation.


Ever heard of naked short? If you search on google, you will find many accusations of such practice, accompanied by the timing thus many long positions will be liquidated, plus the downtime of exchange at the event.

The same goes for naked long, which is basically tether printer printing money out of nothing to pump the price. These are still accusation, unproven to date AFAIK.

[JeromeTash]

There is a question for me too
We give money through leverage, which is the money of others
But where do they get the multiplier profit?
But in general, I do not use much leverage
I use a maximum of 30 levers

In trading when you make profit, It means some trader from the other side has either lost money through liquidation of their equity or triggered a stop loss, like wise, if you lose a trade, it means there is a trader on the other side who made profit out of your loss.

The presence of liquidation price means that traders are able to multiply their profits since there's always going to be someone getting liquidated.

[seleme]

There is a question for me too
We give money through leverage, which is the money of others
But where do they get the multiplier profit?
But in general, I do not use much leverage
I use a maximum of 30 levers

In trading when you make profit, It means some trader from the other side has either lost money through liquidation of their equity or triggered a stop loss, like wise, if you lose a trade, it means there is a trader on the other side who made profit out of your loss.

The presence of liquidation price means that traders are able to multiply their profits since there's always going to be someone getting liquidated.

True, that is why liquidity and stop hunts happen a lot around main price points. Before new trends, fake breakouts go another side to get more liquidity that will be used to fill huge orders.
Btw, for new traders, I don't recommend using leverage above 1:10. Going above 1:10 leverage will cost you a big sooner or later, instead of getting REKT, be wise and don't use a double edged sword for highly volatile crypto markets.

[Tytanowy Janusz]

Note that this is the ideal/best practice, but when we talk about crypto exchange, there are some accusation.


Ever heard of naked short? If you search on google, you will find many accusations of such practice, accompanied by the timing thus many long positions will be liquidated, plus the downtime of exchange at the event.

The same goes for naked long, which is basically tether printer printing money out of nothing to pump the price. These are still accusation, unproven to date AFAIK.

Yea I know that there are many ways crypto exchange can manipulate market or cheat users*, but it does not refer to the normal functioning that OP was asking about.

*front running
*usage of insider knowledge f.e. calculated zero risk stoploss attack (exchange knows where are stop loses of each user so it can calculate everything and do such attack with zero risk)

But normally. Exchange just take fees from trading and is never a counterparty to any trade.

[trickys]

Crypto and leverage... oh dear.
(sorry, couldn't elaborate)

[Tytanowy Janusz]

Crypto and leverage... oh dear.
(sorry, couldn't elaborate)

Whats the difference between buying 1000$ on spot with 10% stop-loss (100$ risk) compared to going long 500$ with x2 leverage and 10% stoploss (100$ risk)? Well zero despite the fact that futures has 5x volume, x times better liquidity,  lower fees, better, more professional UI, ability to have less money on exchange.

If you know what you are doing (especially money mangment) - "Crypto and leverage..." oh yea.

[pawanjain]

I had a few questions for you guys about leverage and how it effects the market

Do sites like Bybit loan you crypto with the ability to leverage?

I don't know about other exchanges but we can get loan on Binance and then use it for leverage trading.
But we do have to keep our other coins as collateral for the loan amount.

Say I put in a long order to 5x 1btc at 48k and it goes to 60k and I sell, whoever loaned me the btc loses equity of 12k.

Is this correct?

If this is correct what stops sites from trading against their customers like bitmex has admitted to?

I know sites say they make their money on fees but its would seem way easier money to liquid high leveraged trades.

what are your thoughts on this?

Thanks
D

Exchanges cannot simply trade against their users because if they do so it will create bad name for them.
Users will eventually find out and stop using the platform resulting in a total shut down instead.

And also, exchanges earn from the fees as well as the liquidations of the leveraged trades so that keeps them on profits anyway.

[tvplus006]

...Whatever you do on the market, exchange is never a counterparty. Its always the other trader. The role of the stock exchange is to provide appropriate conditions other traders with to make transactions. Not to participate in the transaction and take currency risk.

There is a difference between a stock exchange and a cryptocurrency exchange. And their main difference is that the stock exchange operates in a legal regime and all its activities are regulated by law. As for cryptocurrency exchanges, it is here that the counterparty to your transactions is the exchange itself and it will bear the losses associated with your orders. This happens when most positions are open in long and the money that traders lose on short positions is not enough to pay the first.

[Tytanowy Janusz]

here is a difference between a stock exchange and a cryptocurrency exchange. And their main difference is that the stock exchange operates in a legal regime and all its activities are regulated by law.

"JPMorgan fined $1.26 billion for manipulating precious metals" - https://www.straitstimes.com/business/banking/jpmorgan-fined-126-billion-for-manipulating-precious-metals-treasury-market

"JPMorgan slammed with $920m penalty" - https://www.aljazeera.com/economy/2020/9/29/bbjpmorgan-admits-spoofing-by-15-traders-2-desks-in-record-deal

"EU Fines Banks For Manipulating Currency Prices" - https://www.pymnts.com/news/regulation/2019/european-union-bank-fines-currency-manipulation/

"Deutsche Bank to Pay Over $130 Million to Settle Charges" - https://news.bloomberglaw.com/white-collar-and-criminal-law/deutsche-bank-reaches-100-million-deal-to-settle-u-s-charges

"Deutsche Bank Fine for Silver Market Manipulation" - https://www.swissbullion.eu/en/posts/deutsche-bank-fined-for-market-manipulation

Thats after 5 min research in google. I could find 5x more examples of manipulations using banks in next 20 min, internet is full of that, frauds of banks and regulated brokers that "operates in a legal regime and all its activities are regulated by law". And its always the same way. Banks don't fight those penalties. Each time someone catches their little deceptive hands they say "ok, we will pay". You want to know why? Because if they would try to argue someone will check them better and another even bigger muck will show up. They pay fine and continue the manipulation because they earn 10x more from manipulation than they pay in fines for fraud.

As for cryptocurrency exchanges, it is here that the counterparty to your transactions is the exchange itself and it will bear the losses associated with your orders. This happens when most positions are open in long and the money that traders lose on short positions is not enough to pay the first.

NEVER. crypto exchange is never and counterparty to your transactions. Only small, no volume, crypto exchange fill orderbook with their orders to build liquidity, but all they do is arbitraging to bigger exchanges. So in fact they are still not counterparty (dont take currecy risk). They move your trade to bigger exchange taking extra fine.

This happens when most positions are open in long and the money that traders lose on short positions is not enough to pay the first.

Wrong. If more people wants to short ... price is going down. Crypto exchange is not ment to support price. Why would they care about bitcoin stay at 55k instead of going to 54k? Crypto exchange never take risk. Why would they if they can take 0.1% from each trade with zero risk.

Cryto exchange is not gabling. How else would you call taking currency risk blindly by being counterparty to everyone who wants to trade?

[tvplus006]

...Thats after 5 min research in google. I could find 5x more examples of manipulations using banks in next 20 min, internet is full of that, frauds of banks and regulated brokers that "operates in a legal regime and all its activities are regulated by law". And its always the same way. Banks don't fight those penalties. Each time someone catches their little deceptive hands they say "ok, we will pay". You want to know why? Because if they would try to argue someone will check them better and another even bigger muck will show up. They pay fine and continue the manipulation because they earn 10x more from manipulation than they pay in fines for fraud...

Yes, the stock exchange is full of violations, but there are relevant authorities that monitor and punish such violations. And your theses only confirm this fact. And now imagine what is happening on the cryptocurrency exchange, what violations are allowed there due to the lack of punishment and which are not regulated by anyone at all.

Regarding the counterparty, I stand by my opinion, since your arguments are unconvincing)

[Bitcoin_Arena]

There is a difference between a stock exchange and a cryptocurrency exchange. And their main difference is that the stock exchange operates in a legal regime and all its activities are regulated by law. As for cryptocurrency exchanges, it is here that the counterparty to your transactions is the exchange itself and it will bear the losses associated with your orders. This happens when most positions are open in long and the money that traders lose on short positions is not enough to pay the first.

I would say it's a grey area. Stock exchanges being regulated does not mean that manipulations don't happen. They happen all the time except that things are covered up. You get to know about such manipulations after some years in some documentaries or when there is a scandal.

We also have crypto exchanges that are fully regulated like Coinbase pro, Kraken or should we say they are not crypto exchanges since they are regulated by law?  

As for cryptocurrency exchanges, it is here that the counterparty to your transactions is the exchange itself and it will bear the losses associated with your orders. This happens when most positions are open in long and the money that traders lose on short positions is not enough to pay the first.

Open positions are between two parties who are traders not the exchange. In case a position is closed way beyond the stated liquidation price, this is where the exchange's Insurance funds and Auto Deleverage Liquidations come in

There is no damn way an exchange is going to accept paying up for such bankruptcy situation from their very own pocket

[adaseb]

Since he is talking about Bybit and Bitmex he is talking about trading derivatives. Not on margin. So he is just trading future perps. Which means the leverage is given by the exchange like 100x.

Who is lending ? Well since its a perpetual contract its usually the long which pay the shorts for every contract that is traded. If the market is mostly short its the other way around. Its what keeps it balanced.

[Tytanowy Janusz]

Yes, the stock exchange is full of violations, but there are relevant authorities that monitor and punish such violations. And your theses only confirm this fact. And now imagine what is happening on the cryptocurrency exchange, what violations are allowed there due to the lack of punishment and which are not regulated by anyone at all.

As I said:


"And its always the same way. Banks don't fight those penalties. Each time someone catches their little deceptive hands they say "ok, we will pay". You want to know why? Because if they would try to argue someone will check them better and another even bigger muck will show up. They pay fine and continue the manipulation because they earn 10x more from manipulation than they pay in fines for fraud."

1 out of 10 situation banks are punished. But does it changes anything to me as a client? No, because founds from penalties does not go to people, who lost money.

I'm speaking from my own experienced. I was trading 2 years on stocks, on regulated exchanges before I started with crypto. I've seen insider trading, spoofing on my own eyes. Even corruption in Financial Supervision Authority allowing company to show fake papers regarding company financial situation. I was watching this company very close beacuse i wanted to invest in it. Next day trading was off.
Here I know that scammer is around every corner. I know that there is no one I can trust so I act appropriately to the situation.

Regarding the counterparty, I stand by my opinion, since your arguments are unconvincing)

Name 1 situation in which profitable company that earns on fees from every single trade is forced to take unknown currecy risk.