What is the difference between liquidation and liquidation?

The difference between liquidation and liquidation: liquidation is when the position size exceeds the margin, resulting in a negative balance in the account; liquidation is when the loss exceeds all funds in the account, resulting in forced liquidation. Early warning and preventive measures include: setting stop loss orders, controlling leverage, risk management, and fund management.

The difference between liquidation and liquidation

In the field of financial investment, liquidation and liquidation are both important risk events, but there is a clear difference between them:

Definition

• Liquidation: When a trader’s position size exceeds the funds in his account, that is, the value of the purchased contract exceeds the margin, resulting in a negative balance in the trading account.
• Liquidation: When the loss exceeds all the funds in the account, the trading account is forced to be liquidated, that is, the trading platform automatically forces the sale or purchase of all positions to recover the funds.

Trigger conditions

• Cut position: The position size exceeds the margin.
• Liquidation: The loss exceeds all the funds in the account.

Consequences

• Liquidation: Traders need to add margin to maintain their positions, otherwise they may face forced liquidation.
• Liquidation: Traders will lose all funds remaining in their account.

Responsibility

• Liquidation: The responsibility for liquidation is mainly borne by the trader, because it is caused by the trader's own improper operation.
• Liquidation: The responsibility for liquidation is generally borne by the trading platform because the platform failed to force liquidate the position in time to protect traders' funds.

Early Warning and Prevention

Loss and liquidation are risks that can be warned and prevented. Here are some methods:

• Set a stop loss order: Stop the loss in time to prevent the loss from expanding indefinitely.
• Control leverage: Using lower leverage can reduce the risk of liquidation and liquidation.
• Risk Management: Reasonably allocate funds, diversify investments, and avoid excessive concentration.
• Fund Management: Maintain adequate margin to cope with market fluctuations.

It should be noted that the risk levels of liquidation and liquidation are different for traders. The risk of liquidation is more serious. Therefore, traders should fully consider their own risk tolerance when making investment decisions and do a good job in risk management. .

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