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Understanding the risk of liquidation in trade
The cryptocurrency trading world has gained tremendous popularity in recent years, and many people have invested their hard -earned money on the new border. However, due to the high potential, there is a high risk, and one of the most important risks is to prevent risk limiting trade.
What is spare trade?
Margin’s trading allows traders to rent part of their capital to buy more cryptocurrencies than they can afford. This increases their potential harvest, but also increases the loss when the market is moving against them.
A revised backup product: Desperate action
If the trader ‘position is eliminated or consumed at a loss, this means that the market considers that their position will not be restored at its original value. This can happen within trade if the underlying asset is significantly reduced and forced traders to cover the losses by selling borrowed assets.
Trade Risk Restricting Risks
Liquidation of risk restriction can cause significant financial losses for two main reasons:
1
Maximum call price : If the trader position is turned off, the market can determine the “maximum call price”, which is the lowest price the investor can sell his assets. If the market reaches this price, the trader must sell all assets to cover the loss.
- Type 1 ordering (OT1) Law Government : Type 1 Liquidation is the most common type of liquidation of edges in trade. This includes most of the device at a fixed price, which can cause significant losses to traders.
How can you cause liquidation trade
Dogging requires closely observation and positioning positions. If traders are unable to handle their risk or neglect to market conditions correctly, they may be forced to quickly eliminate their condition, which can cause significant losses.
* Lack of Risk Management : Determination of results orders, position size and diversification Trade can lead to uncontrolled price movements.
* Not enough position measurement
: Excessive source or attracting without sufficient means can cause great losses if the market is turning against you.
* Incorrect Market Analysis : Market trends and reasonable trade decisions can lead to poor risk management.
To reduce the risk of liquidation
Although liquidation is part of the hedge trade, there are measures that traders can take to reduce the risk:
- Use stop loss orders : Set the stop loss orders to limit possible losses if the market is moving towards you.
- Diversify Trade : Supplement trade with multiple devices and use different strategies to reduce the overall risk.
3
monitor market conditions : Follow market conditions and change the trading strategy accordingly.
- Use position size : Use positional size making techniques to check the risk and increase the potential harvest.
Conclusion
Restricting trade can be a devastating event for merchants who are unable to manage their risks properly. However, by understanding the risks and measures to reduce, traders can reduce losses and increase success opportunities.
final thoughts
Cryptocurrency trading is a sheasing market and liquidation is just one of the many possible risks that merchants have to prepare. By teaching themselves on trading strategies and risk management methods, traders take control of their financial destiny and develop a successful commercial career.