**How to Avoid Liquidation in Crypto Bull Market?
Liquidation is a term that refers to the situation when a trader has insufficient funds to keep a leveraged trade open¹. Leveraged trading, also known as margin trading, involves increasing the amount of money you have to trade with by borrowing third-party funds². This can amplify your potential gains, but also your potential losses, especially in a crypto bull market, where prices are volatile and prone to extreme swings.
To avoid liquidation in crypto bull market, traders should follow these tips:
- Use the **stop-loss** function, which is a trading tool that automatically decides to sell assets when the market price hits a certain level, restricting the maximum loss of a trade³.
- Understand **cross and isolated mode**, which are two types of margin modes that affect how liquidation occurs. Cross mode means that liquidations can trigger other liquidations, creating a domino effect. Isolated mode means that liquidations are isolated from each other, reducing the risk of cascading losses³.
- Don't use your **whole capital**. Traders should diversify their portfolio with different cryptocurrencies and limit their exposure to each asset⁴.
- Calculate your **liquidation price**, which is the price at which your position would be liquidated. Traders should monitor their margin levels closely and ensure they maintain a comfortable cushion above the maintenance margin level to avoid liquidation⁵.
- Use **lower leverage**. Leverage is the ratio of borrowed funds to initial margin. Traders should use lower leverage than their risk tolerance and market conditions allow³.
- Keep a **higher balance** in futures contracts. Futures contracts are agreements to buy or sell an asset at a specified price and date in the future. Traders should keep a higher balance in futures contracts than in spot markets, as futures contracts have lower margin requirements and less risk of liquidation⁵.