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The Way to Protect Your Position from Liquidation?

4 months ago

Latest Post MCS | Introducing SUN Monthly Futures Contracts public

   

 

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Greetings from MCS, the derivatives trading platform where traders ALWAYS come first.

           

       

           

"I was Liquidated with low leverage"
"The price went up all of a sudden and my short position got Liquidated"

   

We thought the Bitcoin halving would only give hope, but there are many traders who have been liquidated due to the rapidly changing price fluctuations.

     

Did you have enough understanding of liquidation? If our understanding of liquidation was stronger, wouldn't it be possible to minimize liquidations even if the price fluctuations were large?

Let's take a look at what liquidation is.

   

       

   

Why does liquidation exist in the first place?

Unlike Spot, Perpetual Contract has the concept of leverage. Using leverage means that you can trade more than your assets holdings, in other words, the exchange lends money to the trader. Therefore, in futures trading, the concept of lending money exists differently from the spot, so liquidation exists because the principal must be recovered when the value of the position decreases.

   

   

     

Minimize Liquidation in Perpetual Contracts - Isolated, Cross Margin

It is also possible to use various ordering methods to minimize liquidation. The isolated margin can minimize a quick balance loss, and cross margin is a trading method using the entire wallet balance, so it has the advantage of being relatively flexible in adding or removing funds. Usually, different liquidation methods are applied depending on the type of order, and you can use the order type that suits your trading situation the most.

       

   

   

<Isolated Margin>

 

The isolated margin is a method of trading using different margins for each contract. If the trader is liquidated, the unused wallet balance will not be affected.

   

   

<Isolated Margin Liquidation Process>

1️⃣ When the market average price reaches the liquidation price, the position is taken over by the clearing house.

2️⃣ The clearing house liquidates the position at the bankruptcy price after the position is acquired.

3️⃣ Reduce risk limit and carry out liquidation process step by step.

       

     

       

<Cross Margin>

 

Cross margin is a way of trading with the entire available Wallet Balance. The maximum contract size of the cross margin is determined by the maximum leverage allowed for a trading pair. Leverage depends on the initial margin of the position. In other words, the larger the initial margin, the lower the leverage used by the traders. In addition, the position is closed when the position margin reaches the maintenance margin level. In cross margin, the system automatically determines the trader's leverage according to the amount of contracts submitted.

   

 

<Cross Margin Liquidation Process>

Cross margin secures margin to delay liquidation in the following ranks. The position is liquidated when all four ranks are progressed.

1️⃣ Available Balance

2️⃣ Reduce Risk Limit Level

3️⃣ Cancel all Active Orders in the same direction

4️⃣ Cancel all Active Orders in other directions

 

   

   

       

We hope that you will be familiar with the concept and precautions of liquidation so that even if there are external factors that influence prices to fluctuate, you will be able to manage the risk and minimize the chances of being liquidated.

   

Traders ALWAYS come first on MCS (MyCoinStory).

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Published 4 months ago