Recently, the cryptocurrency markets witnessed a notable incident, where the whales known as AguilaTrades incurred a massive loss of $1.866 million after liquidating a short position on Ethereum (ETH).
AguilaTrades had opened a 25x leveraged short position hoping to profit from a decline in the price of Ethereum. However, the sudden surge in the price of the coin exceeding $4,889 – which is the liquidation level – led to the automatic closure of the position by the trading platform, resulting in the significant loss.
Ironically, this loss came shortly after record profits achieved by AguilaTrades amounting to $11.2 million from long positions, reflecting the volatile and unpredictable nature of the crypto market, where massive gains can turn into significant losses in a short time.
This incident reflects the high risks of trading with leverage, especially in short positions. A price increase contrary to expectations leads to what is known as a short squeeze, where losing positions are forced to close, pushing the price even higher.
The main lesson here is that risk management is critical, and that over-leveraging can turn a profit opportunity into a financial disaster in moments.