Hey everyone me kevin here: holy smokes binance just had a flash crash in the price of bitcoin, all the way down to a price of eight thousand two hundred dollars. You can't make this up right here is the candlestick. Eight thousand two hundred dollars is now the 24 hour low for btc on the binance dot us platform. Now it's very important to know that binance us is the as you might guess, united states version of the binance company binance has an international trading platform as well.

However, the international version's not available in the united states, thanks to different regulations, now take a look at this eight thousand two hundred dollars in a one-minute candlestick, that is an 87 drop on a candle stick or wick that went all the way down. Why would this happen? Well, here's exactly why something like this happens and what you can do to prevent getting screwed in scenarios like this and perhaps what you could do to try to profit in scenarios like this, because some people are calling this potentially a scam wick, and there are ways To prevent yourself from getting scammed ways to protect yourself and potentially take advantage of these sorts of opportunities that come up okay, so here's how this works. Let's make an example that you are a bitcoin stock exchange. You are the exchange, and so that is let's say you have a house and your house is the exchange.

Uh see you got a nice little window up here: okay, great uh over here you have a table of buyers, and over here you have a table of sellers and uh you're you're the the happy middle person over here who's going to help take the orders. Okay, great and you're wearing a scarf, perfect uh that doesn't look right. So, let's, let's go with something else. You know what whatever it's a scarf! Okay! So now, let's say that, usually you have oh, i don't know.

Do we have a volume here yeah we have a 24-hour volume: we've got volume right now. Jumping around these are moving averages. Okay, so we got a 24-hour volume over here at about 165 million usd, but that could be wide. Let's, let's keep it simple.

Let's just say you have buyer volume, usually of five million dollars that comes in, and you have seller volume of five million dollars that comes in well. Usually these trades are going to get placed around what the market price for crypto is at any given time. So, plus, or minus 64 000 and depending on, if at one point maybe you have 5.2 million sellers and 4.8 over here, binance can kind of even some of this out to make sure that the spreads don't go wild because see here you have a seller. In balance, a seller in balance on this exchange is usually going to lead the price to go down.

But let's say the price of bitcoin on the market is actually 64 000. But you have the seller imbalance. The price on your platform might actually look artificially lower than what it should be. So, let's say, the actual market price for bitcoin in the world is 64 000.

But on your platform, it's 63 900. Well. This happens regularly, especially at exchanges with lower levels of liquidity, because they can't step in they don't have enough cash to come in and say: hey, no worries, no worries i'll make sure the price doesn't go below the actual broader market price out here in the world Of 64 000 by coming in and buying bitcoin by filling those orders of the people who are selling. So if this extra you know four hundred thousand dollars comes in finance, could say no problem, we'll buy it at the market price.

So that way, when we get uh more actual buyers who come in and want to buy bitcoin at the actual price, we could just transfer it over to them. Well, what ha this happens regularly in exchanges, in fact it happens so much. There are actually uh hedge funds or institutions, potentially both that uh play arbitrage like this, like they'll, see oh look on binance bitcoin's selling for 63 900, but on coinbase. Maybe they have the opposite problem and it's at 64 100., so they'll go buy here and sell over here.

That's like making an instant 200 profit. Now this is called arbitrage, because it's an inefficiency in the marketplace, they're, essentially taking something. That's worth 64., getting it for a discount and selling it at a premium premium somewhere else. This is very commonly done by them.

Doing this they're, actually creating more buyer demand right, they're, bringing this back to five and uh the seller demand, or maybe 5.2 and they're matching that 5.2 5.2 right so arbitragers actually help create a market. They provide liquidity. In fact, if you ever look at things like tether, usd you'll oftentimes see these things, trade in like uh. You know increments of pennies, like a tenth or a hundredth of a penny, and that's because every time it goes above, a dollar people are selling it.

Every time it goes below a dollar people are buying it and they're trying to keep it at a dollar because it's supposed to be a stable coin. So that works the same way except in the early days like if you look at the early days of tether. For example, let's see if we can get a tether chart here, tether - let's go to here, we'll go to coin market cap! Look at tether! If you go far back to the early days of some of these coins, or you know what we'll go to the usd coin, because it's just conveniently right here, you'll see a lot more volatility, see this massive volatility. Oh wait! You can't there we go now.

You can see this massive volatility you have over here. The reason you have these crazy ups and these crazy downs, like a flash crash, is because you don't have enough people doing arbitrage to provide liquidity and the exchange doesn't have enough money to provide that liquidity to make that or to minimize the need for arbitrage. By keeping the price stable, which should be at a dollar right, stable coins and note, this range is really only like four pennies here in either direction. But it's the same thing and the more liquidity there is and the more stable things become.

The less of this volatility you get the less likelihood of a crazy flash crash you get so why did we get this kind of flash crash over here at binance? Well, it's probably because of something like this we'll go back to this little chart right here, rather than a simple example like what i just explained. Let's go extreme, let's say the market price for bitcoin is 64 000 and all of a sudden, a whale comes in here and says: i'm selling a hundred million dollars and over here on the buy side they only have five million dollars of buyers. Well, now, what's going to happen, is the computers are going to automatically go down? What's known as an order book and they're going to say? Okay, we've got somebody who wants to sell it. A 100 million dollars worth of bitcoin - let's sell 5 million of it at 64.

uh, then, let's uh, now, we've blown all of our buyers at that price right so to get to the next pool of buyers. Let's find oh look here, we got five million dollars worth of buyers who have set limit orders for sixty thousand okay, let's sell five million to them, and then you, basically you just keep going down the order book. Uh uh, you know at various different prices, essentially until you've sold the person's entire 100 million dollar position. Now, the only way to prevent the price from flash crashing is if the middle person, in this case finance us, can come in and say whoa whoa whoa.

This is this is where we need to come in and prevent the price from flash crashing, we'll post the hundred million dollars and then we'll just slowly trickle it out to buyers as they come in to make sure our market price is similar in our exchange prices. Similar to what the broader market is doing, but if binance u.s, which, according to a person familiar with binance dot us um, this is exactly what happened. Finance u.s did not have enough liquidity to facilitate that kind of sale to prevent a flash crash, and so what do you get? Boom you get flash crash price goes all the way down to 8 200 as the order book gets extinguished. Basically, people bye, bye, bye, bye, bye and the loser here is whoever the whale is.

Who is setting this massive sell order and anybody who has stop losses or set up on their account or trailing stop losses, so a stop loss. Just to give you an example of this might mean hey. I've made good money on bitcoin if bitcoin ever falls below 60 000 sell my bitcoin so now, and this is where problems can actually get exacerbated. Now you go down this order book and all of a sudden, let's say you get people who set a bunch of stop losses at sixty thousand.

So if bitcoin goes below, sixty thousand put in a market order to sell, let's say ten million dollars worth of bitcoin. So now you have even more cells that you've got ta fill in that order book. This is why it's so important that an exchange provider have proper or enough liquidity to sort of prevent situations like this from happening. Otherwise, like you see here, you get a a temporary collapse which then, obviously, as the price falls, you get arbitragers, who quickly buy high frequency traders who quickly buy or people who have low purchase limits, set, get to go shopping.

So how do you protect yourself in this kind of situation? Oops? Well, you protect yourself in a situation like this, ignore this little facebook crypto thing here. You protect yourself in a situation like this by being very, very careful with stop losses. Stop losses, in my opinion, are something that you generally don't want to have going all the time, especially on something as volatile as crypto. Because of exactly this reason, i would rather try my best to pay attention to crypto, but it's tough, because sometimes crypto plummets in the middle of the night.

So this is where you have to ask yourself: do you want stop losses for a portion of your portfolio? Sort of limiting your potential exposure to these stop losses. They are rare, but if you set stop losses and you get a flash crash, you get screwed. The other thing that you can do is you can set limit buys. The problem is, most of us forget when we have limit buy set.

So all of a sudden, you could start seeing something like. Let's say: crypto falls from 65 to 60 to 50 to 40 and you have a limit buy set at 50 50 000. But it's uh on a massive downtrend. It's gon na go down to 30..

Well now you just bought it 50 and and you could have bought it at 30. If you manually, did it right? That's an extreme example. Obviously, but uh limit buys can uh can be risky, but in a flash crash. The way to protect yourself if there's gon na be a flash crash is do not have stop losses.

You don't want those this. You do not want, but you do want limit buys. So that way, you're part of the order book, that's that gets executed. So this is good.

This is bad in a flash crash, but there are also downsides if the market starts falling more broadly. This has pain. If there's no flash crash this, the stop-loss can help you minimize pain. Now, if you like the way, i explain things consider checking out my programs on building your wealth link down below, especially the stocks and psychology of money group.

Where i talk about this sort of stuff so check that out, there's a 41 off coupon code that does expire october 29th, so check that out i'd love to have you part of the group. The prices do go up every time a coupon code expires and uh. I do add content regularly, in fact, there's a new content drop coming later in the day on october 24th, which i'm super excited about releasing and that's totally for free. So if you buy now before or after it doesn't matter, there's no extra charge for future content check out those programs on building your wealth link down below, really appreciate it.

Thank you so much for watching and folks finance flash crash exchange liquidity crisis. Hopefully, now you understand a little bit more by the way. Binance does not use margin. Finance us does not use margin.

So this was not a liquidation, jesse liquidations issue all right. Folks, thanks again bye.