LiquidationExplained

Trading Liquidation: What You Need to Know! 💡

Ever wondered where your money goes when you're liquidated in trading? Let’s break it down:

What is Liquidation?

Liquidation happens when your account balance runs low, and your leveraged trade starts incurring losses. The system automatically closes your position to prevent further losses.

Where Does the Money Go?

When you’re liquidated, your money goes to these places:

1. Counterparty: The person on the opposite side of your trade gains your loss as their profit.

2. Exchange/Broker: Exchanges charge fees during liquidation, including penalties and transaction fees.

3. Insurance Fund: Some platforms have an insurance fund that absorbs losses when they exceed your margin balance.

Why Does Liquidation Happen?

The primary goal of liquidation is to keep the trading platform solvent. Since leveraged trades involve borrowed funds, the platform closes your position to recover its money.

How to Avoid Liquidation?

Here are some tips to stay safe:

Use Lower Leverage: High leverage increases the risk of liquidation.

Set Stop-Losses: Predefined exit points can minimize your losses.

Maintain Margin Levels: Regularly monitor and add funds if needed.

Understand Market Conditions: Avoid trading during high volatility unless you’re well-prepared.

Key Takeaway

Liquidation is a crucial concept every trader should understand. If you’re new to trading, remember that leveraging requires discipline and a solid plan. Protect your funds and invest smartly!

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