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 does liquidation mean in trading?

It happens when a trader is unable to meet the margin requirements for a leveraged position (fails to have sufficient funds to keep the trade open.) Liquidation occurs in both margin and futures trading.

How does a liquidation algorithm work?

A little more and the exchange will be in a loss, so the liquidation algorithm automatically closes the deal. Keep in mind that the higher the leverage, the lower the percentage of price change will lead to the position liquidation.

How to avoid liquidation?

The easiest and most effective way to avoid liquidation is to place a stop loss order (specify the level of suitable liquidation to minimize losses), which will allow you to close the position in advance in a small drawback if something goes wrong.