Have you ever wondered what happens to your money when you get liquidated in trading? Let's break it down:
*What is Liquidation ?⏳
Liquidation occurs when your trading account runs low on funds and your leveraged trade is losing money. To prevent further losses, the trading platform automatically closes your position.
*Where Does the Money Go ?
When you get liquidated, your money is allocated to the following:
1. *Counterparty*: If someone is on the other side of your trade, they receive the money as profit.♥️🌟
2.*Exchange or Broker Fees*: The trading platform charges fees during liquidation, including penalties and transaction fees.💲
3. *Insurance Fund*: Some platforms have an insurance fund that protects the system from significant losses. If your losses exceed your margin, the fund absorbs the loss.📉
*Why Does Liquidation Happen?*
Liquidation happens to prevent the trading platform from losing money due to leveraged trades. Since you're trading with borrowed funds, the platform liquidates your position to recover their money.📈
*How to Avoid Liquidation?🤔
To avoid liquidation, follow these best practices:
1. *Use Lower Leverage*: High leverage increases the risk of liquidation.
2. *Set Stop-Losses*: Predefine exit points to limit losses.
3. *Maintain Margin*: Monitor your margin levels and add funds when necessary.
4. *Understand Market Conditions*: Avoid trading during high volatility if you're not prepared.
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