Understanding The Risks Of Liquidation In Margin Trading

Understanding the risk of liquidation in the margins: a guide for the precaution of cryptocurrency

The growth of the CRIPTO currency has created a new trade age, and many investors are flowing on platforms such as Coinbase, Binance and Kraken to buy, sell and trade digital property. Although the potential reward for investing in the Crypto currency is noted, this world also has a darker side: Margina trade.

Mark store means borrowing money from brokers or exchange to increase your trade size, allowing you to take more risks and potentially earn a higher return. However, this is also the case with a steep price: if your position is in conflict with you, the removal of your account may be devastating.

In this article, we will enter the world of marginal trade, studying the risks of liquidation and how to reduce them in the Crypto currency.

What is the marginal store?

Mark’s store allows you to sell more cryptocurrencies than you might otherwise afford. This is achieved with borrowed money from brokers or stock markets, which are then used to finance your transactions. The idea of ​​trading a margin is that if your position is against you, the lender will cover part of your loss.

For example, we pay $ 10,000 in the safety account and buy $ 5000 Bitcoin with a course of $ 1 = 3 BTC. The state of your account should be:

• Initial deposit: $ 10,000

• Borrowed funds (from lender): 0 USD (because we didn’t get money)

• Available for trade balance: $ 10,000

Risk of liquidation

Liquidation happens if your edge position is considered too high to maintain it. In the Crypto currency, this can happen when:

1
Movement Price is against you : If the price of cryptocurrencies falls, you may not be able to sell at a good price, leaving you with an excessive position.

• The position size exceeds the available funds : If you are trying to close a long or short position that is too big for your account balance, the stock market will eliminate your position and remove funds from your account.

If your position is eliminated, the funds will be returned to Bitcoin, but with penalties and interest. For example:

• If you sell 1 BTC with a 10 USD = 3 BTC course, you’ll stay for $ 2000.

• Exchange will reject 50% of penalties for your initial investment (for example, from $ 10,000 to $ 5,000) as well as interest.

Crypture risk reduction

Although liquidation can be devastating, there are ways to reduce its effects:

• Diversify your portfolio : Spread an investment in several CRIPTO currency class and assets to reduce exposure.

• Set orders to stop loss

  : Make automatic sales orders to limit the loss if you lose money for a position.

3
Use risk limit strategies : Before the store, use options, processing or other prices lock derivatives.

• Close your account balance : Review your positions regularly and adjust as needed to avoid liquidation.

Best Practice for Marine Cryptulations for Trade

In the accounts of the trade limit you follow this best practice:

• Start with low means

  : Do not risk more than 5-10 times more than the amount you can afford to lose.

• Keep the Small ** account size size: The goal is to balance $ 5000 to $ 20,000 or less.

3
Use a reputable exchange and brokerage : Explore and select a well -disignide platform that offers safe and reliable trade services.

• Stay informed and patient : Continuously follow the market trends and adjust your strategy as needed.

Conclusion

Although margin stores can be an exciting way to invest in cryptocurrencies, it is important to understand the risks associated with liquidation.

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