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What is a short-cut?
Before talking about a short screening, you need to define a short position in trading, which is also called “short” (from English. Short – “Short”). When opening the short, the trader borrows an asset from a broker or exchange, using his funds as a key. You can close this position by ransom of a similar volume of asset at the current price. Profit is formed with a decrease in the price of the asset.
For example, a market participant opened a 1 BTC short exchange at a price of $ 30,000 per coin. After some time, the price of bitcoin fell to $ 25,000, and the trader decided to buy a borrowed asset back. The difference between the price of sale and purchase, that is, $ 5000, is a profit.
Increasing the price of the asset after opening the shorts leads to losses. If on the balance of the trader there are not enough means for their coating, marraine-cell occurs, which can lead to a forced closure of the position (liquidation).
How a short-wax is formed
One of the main reasons for the appearance of a shortster is a dense accumulation of open short positions at a certain price level. When moving up the upwards, market participants are forced to limit risks and close unprofitable shorts.
Since you need to purchase an asset to close a short position, during its growth in its price, this only increases demand. Which, in turn, even more pushes the price up, increases losses for short-position holders and leads to mass liquidations.
The automated nature of modern trade on the exchange, possible panic and increased volumes can create huge price bursts by several tens of percent. Moreover, in some cases, a short-coswice can lead to a stopping of a trading asset.
A similar situation happened on the NASDAQ exchange with Robinhood Market shares-due to volatility, I had to stop trading securities three times.
Examples of a short schedule
Short-Square-a fairly frequent phenomenon in any markets, including cryptocurrency, two examples are presented below.
In November 2020, the Sabreddite participants Wallstreetbets discovered open short positions at the Melvin Capital Head Fund on Gamestop (GME) chain of stores, which was in a pre-bankruptcy condition.
Network “activists” decided to use this information and began to buy GME shares on the exchange to keep the company from collapse. The movement took on a massive nature, and in less than a month, the Gamestop quotes increased more than 20 times.
According to the calculations of Wall Street Journal, this short screed led to a loss of 30% of the total capital from Melvin Capital, and the total loss of short positions for GME amounted to $ 19.75 billion.
In June 2022, the Celsius cryptolending platform suspended the withdrawal of funds, exchange and transfers between accounts due to extreme market conditions. All this led to a strong drop in the cost of the native token of the Cel platform.
A group of enthusiasts, using the Twitter social network, decided to repeat the operation similar to Gamestop shorts. The movement was organized around the hashtag #Celshortsqueeze.
According to Decrypt, the main argument for the short scheduled was the fact of suspension of the terminal of Celsius platform, including Cel tokens. In addition to this, the financial problems of the company should have aroused interest in shorts from traders and large companies.
The essence of the “operation” was to buy Cel tokens on the exchange and withdraw them on cold wallet so that no one could use these tokens for sale. As a result, on June 19-21, 2022, the price of Cel increased almost three times-from $ 0.55 to $ 1.5.
How to protect yourself from a shortcut
Short-Square is a common occurrence in the cryptocurrency market due to low liquidity in many crypto assets, lack of hedging tools and weak legal regulation. To reduce the risks of shortcut, the following mechanisms can be used: