Popular science: What does it mean when a currency contract is liquidated at a fixed point?

Cryptocurrency contracts are popular among investors because of their high returns and the fact that they can be invested without high principal. However, contracts are more risky than spot transactions, especially the possibility of liquidation, which will also cause investors to lose funds. Liquidation refers to when an investor's trading direction goes against the market, causing the investor's equity (net value) to fall below the minimum margin, and is forced to settle by a third party. When it comes to liquidation, there is also the concept of liquidation at a fixed point. Many people may not know what it means for a currency contract to be liquidated at a fixed point? Simply put, it is a liquidation phenomenon that occurs when the price of the asset held falls to a certain point. The editor below will tell you in detail.

What does it mean when the currency contract is liquidated at a fixed point?

In the currency circle (cryptocurrency field), fixed-point liquidation of a contract means that when the price of the asset held drops to a certain point (i.e. liquidation price) when trading using leverage or borrowing, the trading platform will automatically force Close (liquidate) a position. This liquidation price is determined based on the leverage multiple chosen by the trader and the amount of borrowed funds.

Specifically, fixed-point liquidation means that when the market price reaches or falls below the set liquidation price, the trading platform will immediately perform a forced liquidation operation and sell the held cryptocurrency or contract assets at the market price. Cover the loss and pay off the loan.

The main points include the following 3 parts:

1. Default liquidation price:

When traders conduct contract transactions, they usually set an expected liquidation price, that is, the forced liquidation is triggered below this price. warehouse. This price is usually related to market volatility, leverage multiples and personal risk tolerance.

2. Forced liquidation:

Once the market price reaches or falls below the preset liquidation price, the trading platform will automatically perform a forced liquidation operation. This is to protect the interests of the trading platform and other investors and prevent Further losses due to large price fluctuations.

3. Risk control:

Fixed-point liquidation is an important risk management measure in contract trading, which helps ensure the stable operation of the trading platform and the liquidity of the market. This also reminds investors that they need to pay attention to market risks and develop reasonable risk management strategies when trading cryptocurrency contracts.

Is the liquidation of the currency circle contract due to the lack of margin?

The liquidation of the currency contract does not mean that the margin is gone. Although a liquidation will cause investors to be forced to liquidate all positions they hold, this does not mean that margins disappear completely. After a liquidation occurs, if the loss exceeds the margin in the account, the exchange may charge the trader additional fees to make up for the loss. This may include a margin call or payment of other fees. In addition, the exchange may record the liquidation event and record it in the trader's trading history, which may affect the trader's credit record and have an impact on his future trading activities.

Cryptocurrency contract liquidation usually means that when trading using leverage or borrowing, due to price fluctuations, the value of the assets held in the position drops to a certain point (liquidation price), and the trading platform will force the liquidation of the position. In this case, the margin is not enough to maintain the market value of the position, so the trading platform will sell the position assets at the current market price to make up for the loss and pay off the loan.

Specifically, the following are the 4 key points of currency contract liquidation:

1. Insufficient margin:

When the asset value of the position drops below the liquidation price, the holder’s margin may not cover the amount borrowed funds and possible losses, the trading platform will perform liquidation operations at this time.

2. Forced liquidation:

The trading platform will automatically perform a forced liquidation operation based on the market price, that is, sell the held assets. This is done to protect the interests of the trading platform and other investors and prevent losses from expanding.

3. Fund loss:

A position liquidation may cause the position holder to lose his margin and possible additional capital losses, which depends on the difference between the market price and the liquidation price at the time of liquidation and the size of the position.

4. Risk management:

The trading platform sets a liquidation mechanism to control risks and ensure market liquidity and the stable operation of the platform. This is also a common risk management measure in leveraged or lending transactions.

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