What Is Liquidation? Understanding High-Leverage Risks in Crypto Contract Trading

Before entering the crypto assets market, investors often hear a chilling term - Get Liquidated. Especially in futures trading and leverage operations, Get Liquidated is a risk that almost all traders must face. So, what is Get Liquidated? Why is it so common in the crypto market?

What is Get Liquidated: Basic Explanation

Get Liquidated refers to the behavior of the exchange’s system automatically closing positions when the investor’s margin is insufficient to maintain the contract position. For investors, Get Liquidated means significant losses, ranging from a decrease in funds to a total account wipeout.

Get Liquidated in Crypto Assets Futures Trading

In Futures Trading, users often amplify their funds through leverage. For example, opening a 10x leverage position with $500 allows the control of $5000 in funds. Once the market fluctuates 10% in the opposite direction, the margin will be completely consumed, triggering Get Liquidated.

In the Crypto market, the occurrence of getting liquidated is extremely high due to the severe fluctuations in coin prices. Statistics show that on certain days of major market movements, the amount of liquidations within 24 hours can reach several billion dollars.

The relationship between high leverage and Get Liquidated

The higher the leverage, the easier it is to Get Liquidated. Taking 50x leverage as an example, a price fluctuation of just 2% could lead to liquidation of the account. In the crypto market, a daily fluctuation of 2% is almost the norm, so high leverage equals high risk.

Case Study: Get Liquidated Situations in Bitcoin Trading

For example, an investor opens a Bitcoin long position with 20x leverage at $1000, controlling a capital scale of $20,000. When the Bitcoin price drops by 5%, his position will be liquidated, and the account funds will be nearly zero. This situation is particularly common during periods of significant market volatility.

This is the brutal reality of getting liquidated: a single misjudgment can lead to the loss of years of savings.

Strategies and Mindset to Avoid Getting Liquidated

• Control Leverage Ratio: Do not easily use high leverage, especially for beginners.
• Properly allocate positions: Don’t put all your eggs in one basket; spread your funds across multiple positions.
• Set a stop-loss mechanism: determine the maximum loss point when opening a position to avoid emotional trading.
• Maintain a calm mindset: Getting Liquidated often stems from greed and fear; rational trading is key.

Summary

Getting liquidated is not terrifying; what is terrifying is blindly operating without understanding the risks. Understanding what getting liquidated means, recognizing the risks behind high leverage, and establishing a sound risk management mechanism are essential to going further in the crypto market.