Popular Science in the Currency Circle: What is the difference between position liquidation, stop profit, stop loss, and liquidation of perpetual contracts?

Perpetual contracts are cryptocurrency derivatives that have no expiry date, providing traders with the flexibility to hold positions indefinitely. Unlike traditional contracts with specific expiration dates, perpetual contracts allow traders to achieve flexible positioning and risk hedging. However, it is crucial for traders to understand the risk of liquidation, which occurs when the exchange is forced to liquidate a position when margin is insufficient to cover losses. Take Profit and Stop Loss orders provide a way to automate trade management and reduce the emotional impact. The timing and techniques of closing positions also help improve trading efficiency. This article also provides answers to frequently asked questions to help traders avoid liquidation, set take-profit and stop-loss points appropriately, and understand re-entry after closing a position.

The difference between perpetual contracts and traditional contracts

• Perpetual contracts are a type of cryptocurrency derivatives It has no expiration date and allows traders to hold unlimited positions during the duration of the contract.
• Traditional contracts have a specific expiration date, and traders must close or roll over their positions before that day.
• Perpetual contracts can achieve flexible position holdings and risk hedging, while traditional contracts are more suitable for short-term trading and speculation.

The concept and impact of liquidation

• Liquidation means that when the margin is insufficient to cover the loss of a trading position, the exchange forcibly closes the position .
• Impact: Liquidation will lead to serious capital losses and even account liquidation.

The principle and application of stop profit and stop loss

• Take Profit: Set a price point to close the position when the transaction profit reaches the target to lock in the profit.
• Stop Loss: Set a price point to close the position when the trading loss exceeds the tolerable range to limit the loss.
• Application: Stop-profit and stop-loss orders can help traders automate transaction management, reduce the impact of human emotions, and improve transaction efficiency.

Timing and techniques for closing positions

• Timing for closing positions: when the trading goal is reached (stop profit/stop loss) or when the position needs to be adjusted .
• Close position skills: Choose the appropriate position closing method (such as limit order, market order, stop loss order) according to market volatility and trading strategy.

FAQ

Q1: How to avoid liquidation?

A1: Manage positions well, ensure sufficient margin, set stop loss points reasonably, and add margin in a timely manner.

Q2: How to set the stop-profit and stop-loss points?

A2: The profit stop point can be set according to market trends and personal risk tolerance, and the target should not be too high; the stop loss point should be set within the tolerable loss range, and irrational stop losses should be avoided as much as possible.

Q3: Can I enter the market again after closing the position?

A3: Yes, closing a position only ends the current transaction and does not affect subsequent entry plans. However, market changes and adjustments to trading strategies need to be considered.

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