This is an important question, and here is the clearest explanation:
The exchange organizes trading based on the principle of a futures contract (Perpetual Futures). This means that for every short (bet on a decrease), there is always a long (bet on an increase). In other words, there are always two sides to the transaction:
• Someone bets that the price will rise (long) • Someone bets that the price will fall (short).
Thus, it turns out that:
• If the long earns — it takes money from those who were in the short. • If the shorts win, they receive money from those who opened the long.
• The exchange simply acts as a platform that ensures fair redistribution of funds among traders and earns from the commission on each transaction.
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⚠️ Why doesn't the exchange lose money?
The exchange does not bet its money against the traders:
• All losses are always covered by the traders themselves.
• The exchange calculates the liquidation level in advance — the point when a trader runs out of their margin.
• When a position is close to liquidation, the exchange forcibly closes the position (automatically).
• This means that a trader cannot lose more than what they have in their account (margin).
For example:
• Invested $4 million, it is physically impossible to lose more than these $4 million. Even if the price goes strongly against them, they only lose their money ($4 million), and their position is automatically closed (liquidated).
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🔸 How exactly does the exchange's insurance fund work:
• The exchange always has an insurance fund. It is formed from small commissions on each transaction.
• This fund is activated if someone loses money very quickly and the exchange does not have time to close their position (there can be sharp price jumps, liquidity issues, etc.).
• If someone makes a lot of money, the payouts come from the margin of the losing traders and (in case of a shortfall) additionally from the exchange's insurance fund.
Thus, a situation where someone lacks money to pay profits is impossible, as the exchange always controls the margin of each trader and does not allow losses to exceed the margin.
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✅ Key takeaways and recommendations for you:
• Traders trade against each other. The exchange does not lose; it always earns commissions.
• Leverage allows for significantly increased returns, but the risk of losing the entire margin also increases exponentially.
• Liquidation is the automatic closure of a position when a trader's margin runs out. You will never lose more than you deposited.
• Large traders (whales) can manipulate the price (especially BTC, ETH), but this requires huge funds and risk.
• Always be cautious with leverage, as hunting for liquidations is a common practice in the crypto market, and newcomers often fall victim to such schemes.
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✅ How to use this information personally (in practice):
• Track the large positions of whales (through channels and on-chain analytics services).
• When you see that a large position is forming (especially a short with high leverage), be prepared for volatility and sharp price movements.
• You can either join the movement (with caution!), or wait for sharp movements and then buy the asset (BTC, ETH, other altcoins) at a better price.
And most importantly:
Now the topic should be completely clear! If something is still not entirely clear, ask clarifying questions!
