What are position closing and liquidation?

The difference between closing a position and liquidating a position: liquidating a position is a proactive behavior, while liquidating a position is a passive and mandatory behavior. Closing a position is usually done to stop losses or make a profit, while liquidating a position will result in a loss or even loss of the account. Liquidation is triggered by investors at any time, while liquidation is triggered by insufficient margin. Ways to avoid liquidation: control leverage. Set a stop loss. Manage risk. Pay the security deposit promptly.

Closing and Liquidating

Closing

Closing refers to the act of completely hedging the open position on a futures contract. When an investor buys or sells a futures contract, an open position is established. When closing a position, investors need to trade the same amount in the opposite direction to offset the original position. The reasons for closing a position may be stop loss, profit taking or position adjustment.

Liquidation

Liquidation means that in futures trading, due to a large loss, the margin in the investor's account is insufficient to pay, resulting in forced liquidation of the position. Liquidation usually occurs when the market fluctuates violently or when investors are over-leveraged.

Difference

The main difference between liquidation and liquidation is:

• Initiative: Liquidation is an active behavior of investors, while liquidation is passive and mandatory.
• Result: Closing a position is usually to protect profits or stop losses, while liquidating a position will cause a large loss or even loss of the account.
• Trigger conditions: Liquidation can be triggered by investors at any time, while liquidation is triggered by insufficient margin.

Avoid liquidation

In order to avoid liquidation, investors can take the following measures:

• Control leverage: Use reasonable leverage and avoid excessive leverage.
• Set stop loss: Set an appropriate stop loss level to automatically close the position when the loss reaches a certain level.
• Manage risk: diversify your investments and avoid concentrating on a single variety.
• Replenish the margin in time: When the account margin is insufficient, replenish it in time to avoid liquidation.

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