Ether (ETH) price has risen 33 percent in the past five days. According to the data, some buyers started using excessive leverage.
Although increasing the leverage ratio does not necessarily present a negative result, it is considered a yellow alert for short-term trading contracts.
The upward movement of the ether price has been going on for a long time, and after the psychological barrier of $ 1,500 was overcome, records came one after another.
There are several key derivative data that need to be reviewed to assess whether the market is overly optimistic. At the beginning of this is the futures premium, that is, the measurement of the price difference between the futures contract and the normal spot market.
Quarterly futures are typically required to be traded at a 6 to 20 percent annual premium. By postponing the settlement, sellers demand higher prices, which creates a price difference.
The chart above points to the premium rate of Ether futures above 5.5 percent, which is the generally unsustainable level. Considering that there are less than 49 days left to reach the maturity of 26 March, this rate is equal to 55 percent on an annual basis.
Sustainable premiums of more than 20 percent indicate excessive leverage in buyers. This paves the way for massive sales and market crashes.
A similar move occurred on January 19, when Ether exceeded $ 1,400, but failed to maintain such a level. This caused follow-up liquidations to be triggered, and the Ether price dropped 27 percent within two days.
The premium above 20 percent is not necessarily a decline alert, but reflects that buyers with futures contracts use high levels of leverage. This overconfidence from buyers only poses great risk if the market drops below $ 1,450.
It is also worth noting that traders sometimes increase their leverage use in the middle of the rally, but buy an underlying asset (Ether) to adjust for risk.
No liquidation from sellers at $ 1,750
Those who believe that the price of Ether will reach the level of $ 2,000 will be pleased to know that the amount of open positions increased during the last 33 percent price increase. This would show that short sellers think that the futures premium, rather than waiting for a negative picture, is likely to have gained complete confidence.
This week, the amount of open positions in Ether futures increased by 128 percent monthly to $ 6.5 billion.
Using the strategy described above, professional traders perform complex trading consisting of buying the underlying asset and simultaneously selling futures contracts.
These arbitrage positions generally do not pose a liquidation risk. Therefore, the current increase in open position during the strong rally can be interpreted as a positive indicator.
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