It turns out that in a situation there is a situation where there is a conversion of assets into fiat currency or stable coins. This situation is called Liquidation, see the complete explanation on this occasion!
What is Liquidation?
Liquidation in the crypto market involves the conversion of assets or cryptocurrencies into fiat currency or equivalents such as Tether (USDT) and other stablecoins. This process can be voluntary or forced. Liquidation is forced automatically when certain predetermined conditions are met.
Liquidation Dipaksa (Force Liquidation)
In the cryptocurrency world, forced liquidation usually occurs in margin trading, where a trader's position is automatically closed if they do not meet the leveraged position requirements.
How Does Force Liquidation Work?
It is important to note that margin trading involves leverage, which refers to the amount of funds a trader borrows to enlarge his position. Higher leverage means the price range for liquidation is narrower.
For example, if you place a BTC/USDT margin trade with only $50 and borrow the remaining $450, you are operating with 10x leverage. In this scenario, a 10% drop in Bitcoin price could result in the loss of your investment, and further losses could deplete borrowed funds.
Ilustrasi Force Liquidation
To reduce this risk, lenders can initiate liquidation by converting BTC to USDT to return their shares before the price falls further, meaning your margin trade will be liquidated.
Factors Affecting Force Liquidation
- Position Size: The larger the position, the greater the possibility of liquidation.
- Amount of Leverage: Higher leverage means a narrower liquidation price range.
- Account Balance: A lower account balance means a trader is more susceptible to liquidation.
- Market Volatility: A more volatile market can lead to more frequent liquidations.
Dampak Force Liquidation
Liquidation can result in significant losses for traders. In addition to losing the initial investment, traders may also be responsible for additional costs.
How to Avoid Force Liquidation
- Use lower leverage.
- Maintain sufficient account balance.
- Use a stop-loss order.
- Monitor the market closely.
Liquidation Sukarela (Voluntary Liquidation)
Voluntary liquidation simply refers to a trader's decision to liquidate their crypto assets for personal reasons.
Conclusion
Understanding liquidation is critical to managing risk in the crypto market, especially for traders involved in leveraged positions. By being aware of liquidation mechanisms and the factors that influence them, traders can make informed decisions and minimize potential losses.
Read also:
What is Cascading Liquidation and Its Effects on the Crypto Market
What are Market Makers and Market Takers?
DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates
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