Outcome Labs has conducted an extensive study on the crypto derivatives liquidation crisis, revealing the risks associated with leveraged trading.
Research and Its Significance
Outcome Labs identified a significant gap in the existing research: no prior studies had examined the probability of liquidation in leveraged trading. Leverage, often seen as a quick path to outsized returns, carries the hidden danger of complete capital loss — a risk that many traders underestimate.
Key Findings of the Study
The team conducted an analysis of eight years of daily Bitcoin price data. The results showed that the risk of liquidation increases exponentially with higher leverage or longer holding periods, even for traders with short-term strategies. Pete Harrigan, founder of Outcome Trading, noted that traders using 25x leverage face a 25% chance of losing 100% of their funds within 24 hours.
Conclusions and Recommendations
The study reveals that the myth of risk mitigation through shorter trades is not accurate. The rapid volatility in crypto markets can wipe out positions within minutes. Outcome Labs emphasizes the need for advanced risk management tools and strategies.
Successful leverage trading requires a deep understanding and management of risks. Insights from Outcome Labs provide critical information for developing sustainable trading strategies.
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