Leverage risk denotes the increased potential for substantial losses when an investor uses borrowed capital to amplify their trading positions in digital assets. While leverage can magnify gains, it also proportionally increases exposure to market volatility and price fluctuations. A small adverse price movement can result in significant capital depletion or forced liquidation of positions. This risk profile is a critical consideration for participants in derivatives markets.
Context
Leverage risk is a recurring theme in crypto market analysis, particularly during periods of high volatility or sudden price corrections. News reports frequently detail liquidations on centralized exchanges, illustrating the consequences of over-leveraged positions. Regulators worldwide are examining leverage limits and risk management practices within digital asset trading platforms to protect retail investors. Understanding and mitigating leverage risk is essential for maintaining market stability and investor solvency.
A colossal $4.9 trillion options expiry event, exceeding the entire crypto market's value, is set to trigger significant price swings and potential liquidations.
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