The essence of liquidation is the depletion of principal to zero or even incurring debt.
When you trade high-leverage contracts, such as 50x or 100x, account margin can be quickly consumed when the market moves against you. Once losses exceed the principal, the system will force liquidation, at which point not only is the principal reduced to zero, but you also need to make up for the debt owed to the exchange.
With a principal of 100U and 125x leverage, even a 0.4% price fluctuation can trigger liquidation, incurring a liquidation fee of 37.5U (75% of the principal); if leverage rises to 100x, the liquidation fee can reach 150% of the principal, meaning you will owe money to the exchange instead.
Cost differences: Liquidation requires a payment of a 1.5% liquidation fee with no rebate; the manual liquidation fee is only about 0.06% (six ten-thousandths), and some platforms offer a 40% rebate, resulting in actual costs being more than four times lower;
Reducing losses: The system's forced liquidation will place orders at prices 3%-5% worse than the market (in extreme market conditions, price differences can reach 50%), leading to even greater actual losses. Manual liquidation can at least preserve some remaining principal (such as 0.5U), avoiding a debt crisis.
Position management: Split a single fund into three parts, setting tiered stop-loss (e.g., ETH current price 3100, stop-loss set at 3050/3020/3000) to prevent total loss in one go;
On-chain operations: Pre-deposit BNB to pay for Gas fees, ensuring stop-loss orders are executed within 0.3 seconds. A delay of more than 1 second may lead to being 'spiked' and liquidated;
Margin rate falls below 150% (the forced liquidation line is usually 110%, leaving a 40% buffer to prevent spikes); funding rate >0.3% (indicating too many people are going long, making it prone to a reversal and a sharp drop);
A 24-hour increase of over 200% in contract open interest across the entire market (indicating a showdown between bulls and bears, increasing volatility).
Market makers enjoy a 0 fee rate privilege, specifically targeting retail traders' disadvantaged liquidation orders, while retail traders suffer from the triple squeeze of 'high liquidation fees + no rebates + slippage absorption', becoming fuel for the institutions. I would rather manually liquidate and keep 0.5U of residual capital than let the liquidation tax take away 150% of my capital!
I will continue to lay out my strategy! Instead of fumbling around on my own and missing the best entry and exit points leading to holding losses, it’s better to follow me directly if you agree with me.
