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Blockchain Semantics Blog Whale Traders Manipulates You As A Crypto Trader

Whale Traders Manipulates You As A Crypto Trader

By Abhishek Singh | July 28, 2018, 6:21 a.m. GMT

This is the second post of the series why you will never make money doing crypto. In this post, we will cover whale traders. Click here to read the first post, in case you have missed it

Whale traders are traders that can manipulate the market using their great crypto wealth and even the fiat wealth.

Whale traders can move a market with a swing. Here is an example, where a single trader was responsible for the price hike of Bitcoin from $150 to $1000 in one month.

There are the various ways a whale trader can manipulate a market for his profit. In this post, I will discuss four ways that are manipulating you as a crypto trader.

Stop Loss Hunting

In stop loss hunting, the whale trader will push the price of a coin down and then buy the coin at a lower price. Once the trader has bought the cryptos at a lower price, he will wait for the market to rise again before he sells the coin again.

Stop loss hunting is generally done with coins that have low trade volumes. In general, it is easier to manipulate an asset with low trading volumes than the ones which have high trading volumes. Whales are considered to have enough wealth to manipulate such coins and with enough coins, a whale can push the price of coin down, triggering the stop-loss orders.

Let’s see how it is done. Before we start it is important to understand if there are many sell orders at a lower price than the current market price, the price of the asset declines.

Suppose, there is a coin at $100, there are 5 BTC buy order between $70 and $100. There is 5 BTC worth of buy orders between $50 and $70. The aim of the whale is to drive the price below $50.

So, what the whale will do is, put sell orders for the buy orders between $70 and $100. Keeping the selling pressure on other investors will start selling, which is a natural reaction. Then, the stop-loss order at $50 will be executed as the price begins going down. As these orders are executed, the price will decline further. Then, the whale put a buy order at $40 and will wait until the market recovers. This how the whale manipulates the market using stop-loss hunting.

Short/Long Hunting

Not only individual traders, but the exchanges manipulate the market too using short/long hunting is done. Here, they levy huge maintenance fees on the traders via leverage trading. There is also evidence to show the manipulation.

Let’s see how it’s done on Bitmex for BTC.

  1. A trader puts a long position of $10,000 with a margin value of $100 at 100x leverage. Thus, the margin is 1%.
  2. The exchange will sell the asset when the prices drop by $100, at $9,900. This is called as bankruptcy price.
  3. However, what happens at Bitmex is that the asset is liquidated at $9,950. Meaning, if the prices fall by $50, the asset is sold. It is not sold at the bankruptcy price, which is (0.5%) of the initial price
  4. Thus,the liquidation price is $9,950,not $9,900. So, when the liquidation price hits the exchange forces a sell order at $9,900.
  5. Bitmex charges $50 as a maintenance
  6. Thus, at liquidation price, the trader loses the entire margin.

So, what happened here is that the price went down a little and the liquidation price is hit. All the margin of the trader is lost and they have to pay a large amount of fees. Because the centralized exchanges know the price when the liquidation price will hit, they can manipulate the market accordingly.

To be clear, there is no evidence implicating Bitmex. However, it is suspicious that low volume trading periods are followed by a furious uptick in volume.

What’s in it for the exchanges?

Exchanges get extra incentives, such as trading fees as well as the incentives in the form of maintenance fees. The number of leveraged shorts and leveraged longs have increased exponentially.

The other 2 methods will be covered in the next blog.

 

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