Whenever there’s data out on futures contracts liquidation, many novice investors and analysts instinctively conclude that it’s degenerate gamblers using high leverage or other risky instruments. There’s no doubt that some derivatives exchanges are known for incentivizing retail trading to use excessive leverage, but that does not account for the entire derivatives market.
Recently, concerned investors like Nithin Kamath, the founder and CEO at Zerodha, questioned how derivatives exchanges could handle extreme volatility while offering 100x leverage.
When a platform offers leverage or funds the customer to buy for more than the money in the account, the platform takes a credit risk. With Crypto exchanges offering 10 to 100x leverage (futures), on days like today, I wonder who monitors liquidity position of these platforms 1/2
— Nithin Kamath (@Nithin0dha) May 19, 2021