The difference between liquidation and liquidation

Liquidation and liquidation are the actions of closing a position in a transaction, but there are the following differences: Definition: liquidation is a passive forced liquidation because the loss exceeds the account balance; liquidation is the active closing of a position. Reason: Position liquidation due to high leverage and loss exceeding balance; reasons for liquidation include profit, stop loss, and position adjustment. Consequences: Liquidating a position will result in a total loss of the account balance; closing a position can result in a profit or loss.

The difference between liquidation and liquidation

Definition:

• liquidation: When a trader’s loss exceeds his account balance, his position will be forcibly liquidated to avoid further losses .
• Closing: The act of a trader actively closing a trading position.

Cause:

• Liquidation: Usually caused by leveraged trading, where traders trade with more than their account balance. When the market moves opposite to what a trader expects, losses may quickly exceed the account balance, leading to a liquidated position.
• Close a position: There are many reasons for closing a position, including realizing a profit, locking in a loss, position adjustment, or exiting the market.

Consequences:

• Blowout: Cause the trader to lose all account balance and may even owe the exchange or other counterparty funds.
• Closing: If the position is closed with profit, the trader will make a profit; if the position is closed with loss, the trader will lose part or all of the principal.

Measures to avoid liquidation:

• Use appropriate leverage: Do not use excessive leverage, which will significantly increase the risk of liquidation.
• Set a stop-loss order: A stop-loss order is a risk management tool that automatically closes a position when the market reaches a predetermined price to limit losses.
• Manage risk: Diversify your portfolio and avoid over-concentration in a single asset or market.

Closing process:

• Manual closing: Traders actively close their positions through the trading platform.
• Automatic closing: Stop-loss orders or take-profit orders based on preset conditions will be automatically closed.

Summary:

Liquidation and liquidation are both behaviors of closing a trading position, but the reasons and consequences are different. While a liquidation is an unwelcome and potentially catastrophic event, liquidation is a proactive risk management tool that can help traders make profits or limit losses. By understanding the difference between the two and taking appropriate measures, traders can reduce the risk of liquidation and increase the success rate of their trading strategies.

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