What does liquidation mean? How to avoid contract liquidation?

Liquidation in futures contracts refers to forced liquidation due to insufficient margin, resulting in huge losses. To avoid liquidation, traders should take the following measures: 1. Control the leverage ratio; 2. Set stop-loss orders; 3. Avoid chasing orders; 4. Manage positions; 5. Stop profits in a timely manner; 6. Choose a reputable Trading platform; 7. Continuous learning.

What does liquidation mean?

Liquidation refers to the situation in futures or contract trading where the transaction is forced to be closed due to insufficient margin, resulting in huge losses. When a trader's position losses reach a certain level, the exchange will force the position to be liquidated to avoid greater losses.

How to avoid contract liquidation?

1. Control the leverage ratio

Excessive leverage ratio will magnify the traders' profits and losses and increase the risk of liquidation. Therefore, traders should choose the leverage ratio reasonably based on their risk tolerance.

2. Set a stop loss order

A stop loss order is an instruction to automatically close a position when the loss reaches a certain level. By setting reasonable stop-loss orders, traders can limit the extent of losses and prevent liquidation.

3. Avoid chasing orders

Following orders means constantly adding positions when prices fluctuate significantly. This kind of operation is extremely risky and can easily lead to liquidation. Traders should remain calm and do not blindly chase the rise or fall.

4. Manage your positions well

Don’t operate with full positions, spread your funds and hold multiple positions. In this way, even if a certain position suffers a loss, it will not have a devastating blow to the entire account.

5. Stop profit in time

When the transaction is profitable, you should stop profit in time to lock in the profit. Avoid being greedy and holding positions for too long, which may lead to profit taking or even liquidation.

6. Choose a reputable trading platform

Choose a regulated and reputable trading platform to ensure fund security and transaction fairness. Avoid trading on irregular platforms to prevent unexpected situations such as liquidation.

7. Continuous learning

Continuously learn trading knowledge and skills to improve your trading level. By improving trading strategies and risk management measures, the risk of liquidation is effectively reduced.

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