In the crypto world, frequent liquidations in contract trading are a complex and multi-layered phenomenon. The essence of liquidation is the collision between market volatility and traders' risk management, and the unique crypto ecosystem amplifies the destructive impact of this collision. Below is an in-depth analysis of the main reasons:

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I. Core Internal Factor: The Leverage Mechanism of Contract Trading

Leverage is a "double-edged sword" and the direct trigger for liquidation.

1. Amplified Profits and Losses: For example, using 100x leverage means a 1% adverse market move can result in a 100% loss of margin. In the highly volatile cryptocurrency market, 5%-10% swings within minutes are common, making it extremely difficult for high leverage positions to withstand.
2. Forced Liquidation Mechanism: When margin falls below the maintenance level, the exchange will forcibly close positions (liquidate) to stop losses. However, this often occurs during illiquidity or extreme volatility, possibly executing at even worse prices than the liquidation price, resulting in additional losses ("blow-through" liquidation).

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II. Market Characteristics: Extreme Volatility of the Cryptocurrency Market

This is the fundamental difference from traditional markets like stocks and forex.

1. High Volatility as the Norm: The cryptocurrency market is heavily influenced by sentiment, news, celebrity tweets, and regulatory rumors, making irrational spikes and crashes frequent.
2. Uneven Liquidity Distribution: A large portion of liquidity is concentrated in a few top exchanges and major coins. Small-cap coins or emerging exchanges have poor depth, and large orders can easily trigger "flash crash" events, precisely liquidating high leverage orders.
3. 24/7 Trading: There are no market breaks, so traders can be hit by sudden market moves at any time (especially during Asian nights or low liquidity periods) and may not be able to respond in time.

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III. Trader Behavior and Psychological Factors (Key Subjective Causes)

These are the main human-driven reasons for liquidation.

1. Overconfidence and Greed: Many beginners are lured by "get rich overnight" stories and blindly use ultra-high leverage (e.g., 125x), ignoring the risks.
2. Lack of Risk Management Awareness:
· No Stop Loss: Relying on luck and hoping for a market reversal, only to lose it all in a single move.
· All-in or Heavy Position Bets: Investing all funds in one direction without any position management.
· Averaging Down Against the Trend: Persistently adding to losing positions against a clear market trend, until the margin is exhausted.
3. Emotional Trading: Chasing highs due to FOMO (fear of missing out) or panic selling, being completely driven by market emotions.
4. Insufficient Understanding: Not understanding contract mechanisms (such as funding rate, mark price, liquidation price calculation), unfamiliarity with the trading interface, or even misoperations.

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IV. External and Market Manipulation Factors

1. "Flash Crash" Events: Large players may exploit lack of market depth, instantly driving prices to specific points, triggering mass liquidations of leveraged contracts and then quickly restoring the price, profiting in the process. Liquidated orders become "fuel" for the counterparty.
2. Exchange System Risks: During extreme market conditions, exchanges may experience lag or outages, preventing traders from closing positions or adding margin.
3. Information Asymmetry: Whales and market makers have information advantages, while retail traders often end up as "bag holders" reacting too late.

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V. Structural Reason: Contracts Are Inherently a "Negative-Sum Game"

1. Funding Fee Mechanism: Perpetual contracts require long and short positions to pay funding fees periodically, making long-term holding costly.
2. Trading Fees: Frequent trading continuously erodes principal.
3. The Inevitability of Most Losing: Statistically, the contract market is a zero-sum or even negative-sum game. With exchanges and market makers taking a "cut," the vast majority of participants are destined to lose in the long run, and liquidation is simply the fastest form of exit.

Summary & Suggestions

Liquidation is an inevitable outcome of market volatility, leverage, human weaknesses, and market structure. It is not accidental, but rather a common method of "wealth redistribution" in the crypto contract ecosystem.

If you want to try or are already involved in contract trading, be sure to:

1. Treat leverage as a risk control tool, not a profit amplifier: Beginners are advised to start with very low leverage (such as 2-5x).
2. Strictly manage risk: Always set stop losses and enforce them. Never go all-in on a single trade.
3. Use spare funds: Only trade with money you can afford to lose completely.
4. Keep learning: Deeply understand trading mechanisms, technical analysis, and market psychology.
5. Maintain respect: The market is always right; never fight the trend.

Remember an old saying in the crypto world: "Contracts are for hedging risk, not for gambling." If you approach contracts with a spot trading mindset and an investor’s attitude, the probability of liquidation will be greatly reduced—but this requires strong discipline and going against human nature, which most people find difficult. That’s why liquidation stories are so common in contract trading.