Abstract: The natural liquidation of Bitcoin contracts has sparked controversy. This article will elaborate on the natural liquidation of Bitcoin contracts from four perspectives, including background introduction, exchange responsibility, contract design flaws, and trading risks; and ultimately present our personal views based on the above content.
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I. Background Introduction
The price volatility of Bitcoin reflects the nature of the market. Leveraged trading based on Bitcoin prices is a form of smart contract trading. However, due to the significant fluctuations in Bitcoin prices, leveraged trading also carries certain risks during the trading process. This leads to the incident of natural liquidation of Bitcoin contracts. Natural liquidation of Bitcoin contracts refers to the forced closure of positions held by users by the exchange, resulting in a situation where profits and losses offset each other, leading to a zero account balance. This outcome is usually caused by a continuous decline in Bitcoin prices, but it is not limited to this; it can also arise from contract design flaws.
II. Exchange Responsibility
As a trading platform, exchanges should supervise the protection of users' funds and trading behaviors. However, in natural liquidation events, exchanges often shift the responsibility to users, and even keep trading functions open during platform instability, taking on excessive risks. The occurrence of liquidation events often makes users feel that their funds have been treated unfairly. Therefore, we believe that platforms should strictly review customers before trading and provide corresponding risk warnings when account funds reach a certain amount to avoid potential risks.
III. Contract Design Flaws
Bitcoin contracts often have certain design flaws. For example, a common situation is that when Bitcoin prices plummet, exchanges will execute at market price, which can lead to unconventional liquidity of the held funds, causing the exchange to bear excessive risks. At the same time, exchanges often use extremely high leverage to attract users' business, allowing users to continue trading even under significant losses in their account positions, leading to larger-scale losses. Therefore, we believe that exchanges need to conduct compliance reviews, redesign contracts, and establish a more scientific and fair regulatory management system.
IV. Contract Trading Risks
In addition to the responsibility of the exchanges themselves, contract trading also carries various risks. Contract trading is a high-risk, high-reward trading method, and even under normal circumstances, investors need to have a certain level of risk control awareness and skills. In natural liquidation events, most investors tend to choose to increase their positions significantly, and such behavior, similar to "chasing highs and cutting losses," can easily lead to further losses. Therefore, when engaging in contract trading, investors should have a clear understanding of the risks, implement appropriate risk controls, and establish their own risk awareness and independent trading strategies.
V. Conclusion
Natural liquidation events are a "painful yet joyful" experience, which will deepen our understanding of the risks of Bitcoin leveraged trading and remind us to carefully consider risk control methods and strategies during contract trading. At the same time, exchanges need to establish compliance review mechanisms and more scientific and fair management regulations to effectively protect users' rights and assets.