The fundamental reason for forced liquidation of contracts is that market price changes exceed users' expectations and risk tolerance, resulting in insufficient margin to support the contract position.
Inches.
Due to the leverage effect, the risk of contract trading is very high. When the price is unfavorable to you, you need to close your position in time to prevent further losses.
Large. If you do not close your position in time, your margin will gradually decrease until it eventually reaches the liquidation line. If your margin falls below the...
If the position is calculated, your position will be forcibly liquidated, and all funds will be settled.
Specifically, there are several common situations:
Over-leveraged: Some users, in pursuit of higher returns, choose higher leverage multiples or larger position sizes, resulting in excessive exposure.
The margin ratio is low, and the risk exposure is high. Thus, once the market experiences reverse fluctuations, it is easy to trigger the forced liquidation line.
No stop-loss: Some users, to avoid frequent stop-losses or missing rebound opportunities, choose not to set stop-losses or set them too loosely.
Conditions that prevent timely loss control. Therefore, when the market experiences severe fluctuations, it can easily lead to liquidation.
Self-deception: Some users, when faced with reverse market fluctuations, may refuse to admit their mistakes due to self-denial or self-comfort.
They continue to hold on or add to their positions despite their own judgment being wrong, leading to continuous losses. Once the market experiences extreme fluctuations, it becomes challenging.
It can easily lead to liquidation.
