What are liquidation and liquidation examples?

Closing: Investors end their positions through opposite transactions, which may result in profits or losses. Liquidation: When the loss exceeds the margin amount, the available funds are liquidated, causing investors to lose their principal.

Closing and liquidation

What is position closing?

Closing a position refers to the behavior of investors conducting reverse transactions on previously established positions in order to close the contract and exit the market. Closing a position can be profitable or loss-making, depending on the change between the spot price and the price at which the investor opened the position.

What is liquidation?

Liquidation refers to the situation where all available funds in the margin account are liquidated, resulting in investors losing their principal. Liquidation occurs when an investor's losses exceed the margin amount.

Example

Example of closing a position:

• Suppose an investor buys 100 shares of stock at a price of $10 per share.
• A few weeks later, the stock price rose to $12 per share.
• Investors decide to close their position and sell all their shares at $12 per share.
• The investor will receive a profit of $2 as the stock price increases.

Example of liquidation:

• Suppose an investor buys 100 shares of stock at a price of $10 per share with a margin of 10%.
• The stock price dropped to $4 per share.
• The investor lost $600, exceeding the $100 margin.
• Since investors were unable to make margin calls, their accounts were liquidated, resulting in liquidation.

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