As Bitcoin is trading close to the $30k mark, traders are speculating on what types of bet they should opt for, go long, stay flat, or go short. The question asked from a risk perspective is whether traders will push through or if we will see significant profit-taking around this level.
One thing to keep an extra eye out for is the different Bitcoin leverage ratios employed by traders on different crypto exchanges. There are vast differences between exchanges where some traders are seeking out more risk while others are taking a more reserved approach.
A recent analysis by leverage experts at Leverage Trading has shown that exchanges like Bybit and Gate.io have the highest leverage ratios among major crypto leverage trading platforms, putting traders at a higher risk of liquidation should the price of Bitcoin experience a sudden drop.
The results of the analysis show that:
- Bybit currently has the highest Bitcoin leverage ratio of all exchanges, with a ratio of 2.43. This means that the average user on Bybit is taking more than 10 (1004%) times the risk compared to the average user on Binance, which has a leverage ratio of 0.21.
- The analysis also revealed that Gate.io is also considered to be in a high-risk zone with a leverage ratio of 1.34, which is significantly higher than most exchanges, except for Bybit. OKX has a leverage ratio of 0.33, which is also higher than most exchanges but still significantly lower than Bybit and Gate.io.
- BitMEX, Huobi Global, Bitfinex, and Kraken all have very low leverage ratios, with ratios ranging from 0.01 to 0.14. This indicates that traders on these exchanges are taking significantly less risk compared to traders on Bybit and Gate.io.
The high leverage ratios on exchanges like Bybit and Gate.io could be dangerous for traders should there be a sudden drop in prices. The increasing values of leverage ratios indicate that more investors are taking high-leverage bets in the derivative market as prices increase.
The effect leverage has on liquidations
High leverage ratios also mean that the liquidation price gets closer to the entry price of a position, which is what ultimately liquidates a trader. This could lead to unexpected volatility as the price of Bitcoin is closing in on $30,000, a key level that could attract more traders to leverage their bets and also short-term profit-taking which could create a domino effect of liquidations.
The level of leverage among crypto traders is what usually paints the outcome of larger price moves and could be a contributing factor to large liquidations which have previously caused large losses for retail traders.
How to mitigate risk properly
One way for traders to mitigate the risks while leverage trading on these exchanges is by setting stop-loss orders. A stop-loss order is an instruction to sell an asset automatically if it falls to a certain price level, limiting the potential loss. For example, a trader can set a stop-loss order at 2% below their entry price to limit their loss should the prices start to fall once Bitcoin reaches $30.000.
Another strategy is to diversify their portfolio. Instead of only buying one coin, traders can spread their investments across multiple altcoins on different exchanges, reducing the impact of any single loss. This can also help traders to manage their risk exposure and ensure they have a balanced portfolio that can weather a high volatility environment.
A spokesperson at Leverage Trading commented on the analysis:
“The leverage ratios on exchanges such as Bybit and Gate.io are raising concerns among traders. The data used to analyze these ratios was obtained by dividing each exchange’s open interest by their coin reserve. The higher ratios on these exchanges have been associated with significant liquidations in the past, including the $130 million liquidation of leveraged short bets on March 30th, and a similar scenario with leveraged long bets on March 3rd, which led to $62 million in liquidations. If prices begin to fall, traders on exchanges with high leverage ratios could face substantial losses. Therefore, the expert recommends that traders fully understand the risks involved before using leverage.”
In conclusion, Leverage Trading’s analysis provides valuable insights into the risks associated with trading on different crypto exchanges and highlights the need for traders to exercise caution and only trade with leverage when they fully understand the risks involved.
The results show that exchanges like Bybit and Gate.io have significantly higher leverage ratios compared to other exchanges, which could lead to significant volatility should traders across the board not feel confident to push prices higher.
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