Forced Liquidation

A forced liquidation is when assets are unintentionally converted into cash or currency equivalents (like stablecoins). This system generates market orders to get out of leveraged positions. Liquidation simply refers to the act of selling assets for money. When certain requirements are met, this selling is said to be forced liquidation. Forced liquidation occurs in the context of cryptocurrencies when a trader or investor is unable to meet the margin requirements for a leveraged position. Both futures and margin trading fall within the definition of liquidation. The liquidation price is something you should pay particular attention to when trading with leverage. The liquidation price is closer to your entrance price the more leverage you utilize. How so? Let's examine a case in point. With $50, you can start. You take a 10x leveraged long position in the ETH/USDT market, resulting in a $500 position size. Therefore, this $500 is made up of your $50 and the $450 you borrowed. What would happen if the cost of Ethereum dropped by 10%? Right now, the position is worth $450. Additional losses on the position would be charged against the borrowed money. The person that loaned you those dollars doesn't want to take a chance on a loss for you, so they sell your stake to preserve their capital. This indicates that the trade has been closed and that you have lost your initial $50 investment. Usually, there is an additional liquidation fee for forced liquidations. This changes depending on the platform and is there to encourage traders to manually close positions instead of waiting for them to be automatically liquidated. Therefore, before taking a leveraged position, be sure you are aware of all the dangers. Before taking a trade, you can determine your liquidation price on many trading platforms. Liquidation is also used in more conventional contexts when bankruptcy processes require an entity to transform its assets into "liquid" forms (currency).