Peace be upon you and God's mercy and blessings, good morning options friends, I wish you a day full of profit.
The answer to the question is yes, the futures market affects the spot market and vice versa, but the impact of futures is stronger and clearer on the spot.
1. Liquidation causes selling or buying pressure:
- When liquidation occurs in futures, the platform automatically sells or buys.
- This causes a sudden movement in the price.
- Because the price in futures is tied to the spot price, this movement reflects immediately on the price in the spot.
2. Whales use futures to drive the price.
- For example: a whale opens a big short position in futures.
- To let the price fall and profit without being liquidated, they start selling large quantities in the spot.
- This selling scares the market, and the price drops.
- Liquidation starts (people who were in long positions are getting liquidated), and the price drops further.
- This way, the whale profits from the short. The same thing can happen in reverse when they open a long position and buy in the spot to raise the market. This can be represented as a trap for bears and bulls.
3. The spot is affected because people follow the futures price.
- Even if you are in the spot market, the price you see most of the time is a result of the impact of futures.
- Because people follow the news, liquidations, open positions in futures, and react to them even in the spot.
4. Rapid movements = opportunities/risks in the spot.
- Sometimes there is a big rise or fall without news, just because there are liquidations.
- People in the spot may buy or sell because of this movement, even if they are not involved in futures.
In summary, in simple language:
> The futures market is like "dynamite"
> The spot market is like "paper"
> If the dynamite explodes, the paper flies with it!
Do you understand what liquidation means? Write in the comments and I will explain it to you (｡♡‿♡｡)
