In the cryptocurrency market, "needle insertion" is a common term, referring to a phenomenon where the price of a certain cryptocurrency rapidly rises or falls in a short period of time and then quickly returns to normal levels. This article will take you through the causes of needle insertion and its impact on the market.

Causes of Needle Insertion

There are many reasons for the occurrence of the "needle insertion" phenomenon, one of which is insufficient trading depth, which may lead to needle insertion. In addition, inadequate exchange mechanisms may also be the culprit of needle insertion. Sometimes, price manipulation may also lead to the occurrence of needle insertion.

Impact of Needle Insertion on the Market

1. Spot Market

The needle insertion phenomenon usually has a relatively small impact on the spot market. However, due to the rapid price fluctuations caused by needle insertion, it is difficult for humans to react in time, so it will not have a huge impact on market quotations. The needle insertion phenomenon generally occurs within the exchange, but the needle insertion situation may vary among different exchanges at the same time.

2. Contract Leverage Accounts

For trading accounts using contract leverage, the situation may be completely different. Contract trading accounts usually hold positions, and sharp price fluctuations may trigger the forced liquidation mechanism. Many exchanges evaluate position risks based on the "on-site transaction price." Once the needle insertion phenomenon occurs, investors' accounts may be forced to liquidate, resulting in significant losses.

Preventive Measures for Needle Insertion

1. Reference Prices from Multiple Exchanges

Introducing prices from multiple exchanges as a reference in contract trading, calculated through weighted averages and other methods, more accurately reflects the overall market price trend, reducing the abnormal fluctuations caused by needle insertion.

2. Application of Fault-Tolerant Mechanisms

Exchanges should apply fault-tolerant mechanisms to automatically exclude abnormal exchange prices, identify exchanges with abnormal prices, and exclude them when calculating reference prices, reducing the impact of needle insertion on contract trading.

3. Optimization of Forced Liquidation Mechanism

Exchanges should optimize the forced liquidation mechanism for contract trading, provide early warnings to position accounts, and reduce unexpected losses caused by needle insertion.

4. Technical Monitoring and Anti-Cheating Measures

Exchanges should upgrade monitoring technology and surveillance systems to detect abnormal trading behavior, promptly identify malicious manipulation, and reduce the risk of needle insertion.

Although the "needle insertion" phenomenon is mysterious, with appropriate preventive measures, its adverse impact on investors can be reduced. When engaging in cryptocurrency contract trading, the rational application of external index prices is a key protective mechanism, helping to avoid forced liquidation caused by needle insertion and thereby reducing investor risks.

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