What does high leverage liquidation mean?
- WBOYOriginal
- 2024-07-17 12:10:57828browse
Under high leverage operations, market fluctuations result in insufficient account funds to cover losses, which eventually triggers forced liquidation, resulting in capital losses. Such losses include account shortfalls, margin losses, margin calls and credit damage.
High leverage liquidation: Risks and losses
High leverage liquidation means that when using high leverage, due to market fluctuations or failed transactions, the trader's account funds are insufficient to cover losses, which ultimately leads to The account positions were forced to be liquidated and the resulting losses were borne.
How to generate high leverage liquidation?
When traders use leveraged instruments with higher leverage, such as futures, foreign exchange or Contracts for Difference (CFD), high leverage liquidation can occur. Leverage refers to the ratio of a trader’s actual funds to available trading funds. For example, 10x leverage means that a trader can trade with 10 times the actual funds in their account.
The risk of high leverage liquidation
The risk of high leverage liquidation is that when the market fluctuations are contrary to the trader’s expectations, the trader’s account funds will face higher risks. Even minor market fluctuations, in the case of high leverage, may lead to huge losses of account funds or liquidation.
Loss from high leverage liquidation
When high leverage liquidation occurs, traders will face the following losses:
- Loss of account funds: Account funds will return to zero or become negative.
- Margin Loss: The margin used by traders to open a position will be forfeited.
- Margin Call: If the account funds fall below the maintenance margin level, traders may need to add margin to the broker to avoid liquidation.
- Credit Damage: Liquidation can damage a trader’s credit rating, making it difficult to obtain future credit.
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