What is "Liquidation"?
Imagine borrowing money for a trade, feeling super smart, but then suddenly, poof! All your collateral is gone. It feels like being evicted from your own trading position, and most people don't truly grasp how quickly it can happen.
Okay, let's talk about liquidation, a word that often sounds scarier than a horror movie jump scare 👻.
Think of it like this: when you take out a loan, maybe for a house or a car, you put down collateral, right?
In crypto, if you're doing leveraged trading, you’re essentially borrowing funds and using your crypto as collateral.
You get to trade with more capital, which is exciting, but here’s the tricky part: if the value of your collateral - that crypto you put up - drops too much compared to the loan, the exchange has to sell it off automatically to cover the debt.
That’s liquidation, and the common mistake is thinking you always have infinite time to react.
Therefore, understanding your "liquidation price" is key for peace of mind.
This is the exact point where your collateral would be automatically sold off.
The big lesson? Always monitor your margin health!
We can avoid that gut-wrenching 'poof' moment by adding more collateral (called margin top-up) or using stop-loss orders to close your position before you hit that scary line.
It’s like knowing your car’s gas tank is getting low and filling it up before you’re stranded!
Now you know how to stay in the driver's seat of your trades.
#CryptoTips #TradingBasics #RiskManagement #CryptoLearning - Disclaimer: Sharing knowledge and insights as part of learning and growing together. For educational purposes only, not financial advice.