Before answering this question, let me explain the meaning of perpetual contracts and liquidation. A perpetual contract is an upgraded version of traditional futures contracts. In simple terms, it is leveraged, has no delivery period, and can be held indefinitely. Liquidation refers to the situation where the client's equity in the margin account is negative under certain special conditions. After understanding the meanings of both, let's return to the question of whether perpetual contracts can be liquidated. To be precise, perpetual contracts also carry the risk of liquidation, which specifically depends on how the investor operates. Next, the editor of the cryptocurrency circle will help you understand what causes liquidation of perpetual contracts?
Reasons for liquidation of perpetual contracts:
1. In isolated margin mode: When a user's position is at level 2 or below, and the margin rate is lower than the required maintenance margin rate for that level plus the liquidation fee rate; or when a user's position is at level 3 or above, but the margin rate is lower than the required maintenance margin rate for level 1 plus the liquidation fee rate, the system will directly entrust all contracts of that position to the liquidation engine at the bankruptcy price (the price that clears all margin).
2. In full margin mode: When a user's position is at level 2 or below, and the margin rate is lower than the required maintenance margin rate for that level; or when a user's position is at level 3 or above, but the margin rate is lower than the required maintenance margin rate for level 1 plus the liquidation fee rate, the system will directly entrust all contracts of that position to the liquidation engine at the bankruptcy price (the price that clears all margin).
Behaviors that cause liquidation of perpetual contracts:
1. All-in players
This is the first, and there is probably no dispute. Some new non-professionals love the thrill of all-in betting, always going all-in, which inevitably leads to the same feeling of complete defeat. Some may ask: 'But there is still a chance of winning.' First of all, this is a reckless gamble without leaving any room. Secondly, every all-in has a risk of loss, and one loss means being out. Therefore, when playing 100x perpetual contracts, the first advice given by the authorities is to control your position and avoid going all-in.
2. Those who do not set profit-taking/loss-cutting
This is the most common liquidation phenomenon, related to the non-professional psychology of most investors. When losing, they are just satisfied with breaking even; when profiting, they want more. They fear cutting losses and dislike taking small profits, so they stay in the market for a long time. The likely outcome is that a wave of market movement hits, and they are completely wiped out, with no options left. Therefore, it is crucial to clearly define one's profit-taking/loss-cutting points. Without a bottom line, ignoring market conditions and relying on imagination to invest is a terrifying thing.
3. Counter-trend swing traders
Those who understand the situation are the true heroes. Engaging in swing trades when the overall market is empty is a risky endeavor. Many traders who short and then go long will encounter such dilemmas. Missing both sides of the market, when the trend comes down like a fierce tiger, they will have already lost a lot by the time they want to run. If they decisively cut losses, that's fine; if they keep dragging on, they will drag all their funds down with them. Therefore, trading in the direction of the trend is relatively safer.
4. Blind followers
Following the big players can lead to gains. This is undoubtedly true, but it can also make you overly dependent. Many times, market conditions change rapidly, and the emergency actions and temporary judgments of big players may not be something you possess. If the big player changes strategy or makes a temporary move and you miss it, lacking self-judgment skills can lead to significant losses.
5. Margin top-up traders
I once heard of a friend in the crypto space who experienced liquidation 7 times in one night. This seems cautious, adding margin bit by bit, but actually violates the taboo of the top-up strategy. Increasing margin can ensure safety, but after each liquidation, one must start over, being gradually annihilated by the market, eventually leading to complete liquidation with nothing left, losing the capital to make a comeback. Therefore, it is important to emphasize the artistry of margin settings; it must be set safely in one go.
6. Overnight position holders
Those who dare to hold positions overnight are either confident or reckless, and often it is the latter. 'The market moves at night' is a common sentiment in the crypto space, with big movements often occurring at night. If one can still sleep soundly while holding a position, then the risk is definitely significant.
7. Impatient bottom fishermen
To catch a bottom, one must first identify a solid bottom. Often, investors believe they have reached the bottom by referencing previous prices, not realizing that the market moves in waves. The bottom they see may very well be the ceiling of a larger trend, and if they do not cut losses, they could become trapped in an eighteen-layer hell, not far from liquidation.
8. All-encompassing traders
It is impossible to catch every market movement. Blindly entering the market will only exhaust your chips early. By the time the real market movement arrives, it will be difficult for you to extricate yourself. Therefore, skilled traders will patiently wait for the right opportunity. If they do not act, they will wait; once they act, they will definitely make a profit.
9. Those who stubbornly hold on to losses
In the context of the larger crypto market, admitting defeat is also a means of survival. To avoid liquidation, continuously adding margin is also driven by emotions. Sticking it out against the market could lead to a glimmer of hope, or it could lead to an endless abyss that one can never escape. Therefore, appropriately cutting losses is also something worth encouraging.
Through this article, I believe you now have an understanding of whether perpetual contracts will be liquidated. A friendly reminder: investors should not open high leverage positions before getting hands-on experience; start with low leverage to reduce your experiential costs and the risk of liquidation. Of course, if you have experienced friends guiding you in trading, that is also beneficial for beginners, as it will allow them to start more quickly.
I am (Jun Ge Crypto) deeply involved in the currency circle for 6 years, with a clear strategy for short-term speculation and well-structured long-term layouts. I accurately capture optimal trading opportunities and provide you with information to empower your investment decisions. Choose the right direction and find the right rhythm; here you will find the professional perspective you need.$ETH $SOL
