What is crypto liquidation?

However, in the crypto space, the term liquidation is mainly used to describe the forced closing of a trader’s position due to the partial or total loss of the trader’s initial margin. This happens when they cannot meet the margin requirements for their leveraged position — i.e., they have insufficient funds to keep the trade open.

What is liquidity in cryptocurrency?

Liquidity in cryptocurrency means the ease with which a digital currency or token can be converted to another digital asset or cash without impacting the price and vice-versa. Since liquidity is a measure of the outside demand and supply of an asset, a deep market with ample liquidity is an indication of a healthy market.

What happened to crypto futures in January?

In early January, when Bitcoin fell below 43k, over $812 million of crypto futures were liquidated, resulting in large losses for long crypto traders. This happened because of a partial or total loss of initial margin for traders. It’s important to note that the liquidation price can change at any time, depending on the current market conditions.

How do you know if a cryptocurrency is liquid?

However, there are other signs that can be used as proxies for liquidity in cryptocurrencies. The gap between the highest bid (selling) price and the lowest ask (purchasing) price in the order book is known as the bid-ask spread. The narrower the spread, the more liquid a cryptocurrency is said to be.