How painful is liquidation? Lao Liec teaches you 3 tricks to save yourself, so you don’t get cut off by the market again!

Among the veterans who play with contracts, who hasn’t experienced several liquidations? It felt like riding a roller coaster and hitting rock bottom. The account instantly dropped to zero, and I even owed money to the platform. As soon as a pin is inserted into the market, my heart becomes cold. Today we won’t deal with the false ones, but let’s talk about what liquidation is, why it happens, and how we can reduce the number of liquidations – after all, money doesn’t come from strong winds, it is what we have worked hard to save!

What exactly is liquidation?

Liquidation is called liquidation in English. To put it bluntly, it means that your margin is not enough, and the platform will force your position to be liquidated. In leveraged trading, such as playing currency contracts, you borrow money from the platform to expand the transaction. It feels great when you make money, but it hurts like hell when you lose money. Once the market fluctuates too much and the loss exceeds your margin, the platform will liquidate you mercilessly, and the account may directly return to zero or even become a negative number.

Knock on the blackboard: Playing with contracts and choosing the wrong platform is all in vain! It only takes a matter of minutes for the Pheasant Exchange to run away. We only recommend large, serious and licensed exchanges, with safety first.

Why does Laojiao also liquidate his position? How many of these pitfalls have you stepped on?

The liquidation is not due to bad luck, but mostly due to poor risk management. Take a look at the following reasons. How many of them have you won?

The leverage is too high: I always want to push the leverage to 100 times. If the market shakes a little, the margin will be gone. Behind high returns are high risks, as the old saying goes? If you are greedy, the snake swallows the elephant!
Don’t stop losing money and bear it hard: If you lose money, you won’t cut it off. You always think you can get it back, but as a result, you lose more and more until your position is liquidated. Stop loss is your life-saving talisman. Playing a contract without stop loss is no different from running naked.
Operation against the trend to buy the bottom: The market is obviously falling, but you insist on going in to catch the flying knife, but you are buried hard. The only way to go is to follow the trend, don't always think about picking the top and buying the bottom.
Frequent trading and excessive operation: Do dozens of transactions a day, pay a lot of handling fees, and it is easy to have an explosive mentality. Trading is not about moving bricks. The busier you are, the easier it is to lose money.
Ignore the market black swan: Suddenly there is policy news or market intervention, and if you don't take precautions in advance, your position will be destroyed directly. News in the currency circle is very important, so you have to be careful.
Full position with a shuttle: All funds are pressed into one coin. If the price falls, there is no chance to cover the position. Diversify your investments and don’t put your eggs in one basket.
Emotional head-on: Ecstasy when you gain, fear when you lose, being led by emotions, making stupid decisions. You have to trade calmly, like a robot.

How to avoid liquidation? Old Leek’s Three Life-Saving Tips

Don’t want to be harvested by the market anymore? You have to remember these tips, they are all gained through blood and tears.

1. Don’t open the leverage too high, be steady.

The higher the leverage, the faster you die. Mr. Buffett once said that leverage plus ignorance is courting death. Novices are advised to start with low leverage, such as 5-10 times, and practice their skills first, instead of challenging the limit as soon as they get started.

2. Stop loss must be set, don’t be reluctant

Each transaction has a stop loss, and the position will be automatically closed when the loss reaches the preset point, preserving the remaining principal. This is the bottom line for traders. Don’t play with the contract without stop loss.

3. Manage your position well, don’t go all-in

A single transaction should not exceed 1-2% of the total funds, and leave some surplus to deal with emergencies. Heavy position trading is like walking on a tightrope, a gust of wind can blow you down.

4. Diversify your investments, don’t bet a coin

If the funds are divided into several mainstream currencies, even if one currency plummets, the others can still hold up. The currency circle is highly volatile, so diversifying risks is a smart approach.

5. Pay attention to market trends and avoid high-risk periods

When encountering major events such as the Federal Reserve meeting or the release of CPI data, reduce positions in advance or wait and see, and don't dance on the cusp of the storm.

6. Stay rational and don’t let your emotions take over.

Develop a trading plan and strictly implement it. Don't be greedy if it goes up and be afraid if it goes down. Emotional trading is an accelerator of liquidation.

What should I do if my position is liquidated? Don't panic, follow these three steps

The liquidation has already happened, there is no point in crying. The key is to get up and learn from it.

Check how big the loss is first: Check how much money is left in the account and whether there is a negative balance (regular large firms generally have protection and do not need to pay compensation). Calculate clearly how much you have lost and have an idea in mind, so that it does not affect your normal life.
Review the transaction to find the reason: Looking back at this transaction, is the leverage too high? No stop loss? Or are you emotionally overwhelmed? Only by finding the root cause can we prescribe the right medicine.
Suspend trading and learn to adjust: Stop trading first after liquidating your position, and don’t rush to recover your losses. Learn more about risk management and adjust trading strategies, such as reducing leverage and strictly stopping losses. The liquidation is tuition fee. If you pay it, you will learn more.

It's not scary to have a liquidated position. What's scary is that you won't have a long memory after the liquidation. How many big guys have lost their positions in the early stage? The key is how to stand up.

Conclusion

Liquidation is the norm in leveraged trading, but we can reduce the number of liquidations through risk management. Remember, the safety of your principal is more important than anything else!

**Old Leek’s advice: Keep the green hills and don’t worry about running out of firewood! **

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