A simple explanation of what liquidation is

Liquidation refers to the behavior in financial transactions where the account loss reaches the stop loss line due to market fluctuations or excessive leverage, and the position is forced to be liquidated. This includes drastic changes in market prices, excessive trading leverage, and automatic liquidation of the stop loss line, which may Leading to consequences such as loss of funds, emotional impact, and damage to credit.

What is liquidation?

Liquidation means that in financial transactions, due to large fluctuations in market prices or excessive trading leverage, all or part of the funds in the trader's account are lost. When the stop loss line specified by the trading platform is reached, the platform will forcefully close the position.

Detailed explanation:

• Significant market price fluctuations: When market prices change drastically, traders may have wrong trading directions, resulting in trading losses.
• Excessive trading leverage: Using leverage trading means borrowing part of the funds to conduct transactions. Although it can amplify profits, it also increases risks. When market prices move in an unfavorable direction, leverage will amplify losses and lead to liquidation.
• Stop loss line: The trading platform sets a stop loss line. When the account capital loss reaches this line, the platform will automatically close the position to avoid further losses.

Consequences of liquidation:

• Fund loss: After liquidation, traders will lose all or part of the funds in the account.
• Emotional impact: Liquidation will cause greater psychological pressure and emotional impact on traders, and even lead to loss of confidence.
• Credit damage: In some cases, liquidation may damage a trader’s credit record and affect future trading activities.

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