29 November 2023
Cryptocurrency is decentralized due to its underlying blockchain technology and thus its exchange is also not regulated, unlike the traditional market. However, be it any market, it has a chance of being manipulated and tampered on, although the chances with cryptocurrency are comparatively a bit high. The tracking and dodging of the manipulator’s play can be a daunting task. However, you can learn to spot, and circumvent the chances of foul play or merely avoid by understanding the strategies that might lead to a loss.
In this blog, we are going to lay-out three strategies that are played by the manipulators to help you steer clear of:
1. Hidden Orders
Hidden order is a concept wherein a sizeable undetected bid is placed and asked on the order book of the exchange, meaning it enables the automatic replenishment after every fill leading to avoid being detected on the order books of the exchange. It consists of large amounts that are readily available for the users. The wall involving the buying and selling is not used for execution but to show the large flow and are otherwise canceled when the market reaches its level, while it is very rare that before execution the whales would self-report their flow.
One can avoid this by measuring the depth of the order book instead of monitoring the order book.
Also Read, 7 Most Common Phishing Attacks
2. Wash Trading By Utilizing Multiple Exchanges
The concept consists of when the whales post large trades on the exchanges that are monitored heavily while doing the right opposite on the ones that are smaller. This is used for either earning profits from funding trade arbitrage or wash trading otherwise to hide the actual real flow. The market makers are also paid to bring flows on the small venues which enables a boost in the volume on exchanges for lesser trading fees. This strategy is legal, however, it inflates the volume and also influences the traders to be a part of a non-existent buy and sell flow.
One can avoid misleading by concentrating on longer price trends than large individual trades.
3. Forced Liquidation
The concept consists of when the whale prop ups the prices in order to liquidate the exposure especially when the market is over-leveraged or an imbalance of the funding rate. For the benefit, the whales open an opposite position of the alike or the same size. A forced liquidation often leads to passing the similar order flow affecting the short sellers and enabling the whale the large short positions liquidated and boost the gain than the earlier long contracts.
One can not nearly avoid this as prediction with this concept is unclear however one can compare the premium on the longer-term contracts to the perpetual future. A flat or an inverted curve states the whale.
The whales can go to great lengths to avoid being caught in the foul play and intend to make the benefits from FOMO and FUD. Detecting every move and strategy can be daunting, stressful, and nearly impossible, however, on can yet avoid being deceived through learning and understanding the view and the movement of the crypto price in the longer-term.