Leverage and liquidations: how you get wiped out

Hey trader,

let me tell you how you burn 253 million dollars in a single day.

You don’t need an epic crash, a bad headline is enough. Middle East tensions came back, crypto went down with the rest of the risk-off, and in a few hours 253 million dollars of leveraged positions were wiped out.

The real question isn’t “why did it drop”. It’s: why did so many people blow up all at once? The answer has a name, and it’s leverage.

Leverage, explained without the jargon

Let me keep it simple. Leverage is a loan the exchange gives you to trade with more money than you have. You put in 100, with 10x leverage you move 1,000. If it goes up, you earn as if you had 1,000. Nice, right?

Hold the celebration. Leverage cuts both ways. If the market goes against you even a little, you have to cover that loan. And if your margin isn’t enough anymore, the exchange doesn’t call you and doesn’t apologize: it closes your trade for you. That’s liquidation. With 10x leverage a 10% move against you is enough, actually a touch less because the exchange closes a moment earlier to protect itself, and you’re out. With 50x leverage, do the math yourself.

The avalanche: why everyone blows up together

Here’s the part almost nobody explains. When the first wave of liquidations hits, those are forced sales. And forced sales push the price even lower. A moment later the second wave hits, pushing it down again. And so on.

It’s called a liquidation cascade, an avalanche. It’s not the market that “decided” to crash. It’s thousands of leveraged trades dragging each other down the cliff. Those 253 million are the value of the positions closed by force, not money burned one to one, but the mechanism is exactly that. And mind you, that wasn’t even one of the really bad days: in real crashes we’re talking billions. Picture the landslide.

How not to end up on the list

Little theory and a lot of practice. I won’t tell you “don’t use leverage”, you wouldn’t listen anyway. I’ll tell you how not to get wiped out:

• Keep your leverage low. The difference between 3x and 50x isn’t “more courage”, it’s how close you’re walking to the edge of the cliff.
• Size the position on the risk, not on the dream. First you decide how much you’re willing to lose, then you calculate the size. Never the other way around.
• Always set your stop. Your own stop, decided with a cool head, beats the liquidation decided by the exchange.
• Don’t enter with leverage before a big piece of news. The Middle East doesn’t send a warning.

Leverage doesn’t make you a better trader, it only makes you faster, for better and for worse. And if you don’t yet have a method that works without leverage, leverage only gets you to the wall sooner.

The difference between who blows up and who stays standing

Back to those 253 million, because there’s a twist. A good chunk of those people didn’t get liquidated because of a bad analysis, they got liquidated because they walked in blind. They didn’t know geopolitical tension was in the air, they didn’t know where the big positioning sat, they didn’t know the zones where price usually reacts.

Here’s the point: the line between who gets wiped out and who takes the day home almost always runs right there, through how much you see before you enter. The problem is that this data is scattered across twenty different places, often behind a paywall and in insider jargon.

That’s why we built Thunder Desk, and I’ll say it straight: if you trade with leverage and you don’t have a tool like this in front of you, you’re driving down the highway with your eyes closed. In one place, free, you’ll find the macro calendar with the real impact of every event (so you see the next bad headline coming), the positioning of commercials and speculators from the COT reports, gamma exposure on the S&P and Nasdaq, and the zones of interest on the DAX, ES, NQ and Dow. No noise, just data.

Create your account, open it five minutes before you trade, and the difference between you and those 253 million, you make it right there.

That’s it from me. If you know someone playing with fire at 50x leverage, send them this article: you might save them the funeral of their account.

Suerte Amigo!
Tiziano Brunno Tradingblog

Disclaimer: purely informational and educational content. It does not constitute financial advice or an invitation to trade. Trading involves the risk of capital loss.

Tiziano Brunno