What are the differences, advantages and disadvantages between currency liquidation and liquidation?

php Editor Zimo Coin Circle liquidation and liquidation are both common terms in the cryptocurrency market, but their meanings and impacts are different. Forced liquidation means that when a trader's position reaches the liquidation line, the exchange will automatically close the position to protect the stability of the market and the safety of the trader's funds. Liquidation means that a trader's position is forced to be liquidated in the market due to violent price fluctuations, resulting in huge losses for the trader. The difference between the two is that forced liquidation is an operation actively carried out by the exchange, while liquidation is the result of the traders themselves being unable to bear the losses. There is no absolute answer to the question of which one is better, as every trader’s risk tolerance and trading strategy differs. It is important to understand and master both concepts in order to make informed decisions in trading.

What is the difference between forced liquidation and liquidation in the currency circle?

Crypto liquidation and liquidation are two related but different concepts. Their differences are mainly reflected in three aspects: trigger conditions, execution mechanisms and purposes. First of all, liquidation is a process in which the exchange system automatically closes a trader's position when his margin level drops below a certain trigger point based on set rules. This is a precautionary measure designed to protect the interests of traders and exchanges. The conditions that trigger a liquidation are usually set according to the exchange's regulations, such as margin levels falling below a certain percentage. When the trigger conditions are met, the exchange will immediately execute the position closing operation. Liquidation refers to the process in which the exchange system forcibly closes a trader's position when his account reaches a point where it cannot meet the maintenance margin requirements. This situation usually occurs when the trader's losses exceed the tolerance of his account and he is unable to continue to support the margin required to hold the position. The exchange will forcefully close the position based on market conditions and the trader's account status.

Forced liquidation is triggered when the margin ratio is lower than the set trigger point, and liquidation is triggered when the account cannot meet the margin requirements.

Liquidation is proactively implemented by the exchange, while liquidation is enforced by the system and is beyond the control of traders.

The purpose of forced liquidation is to protect the interests of the market and traders and prevent excessive account losses. The purpose of liquidation is to ensure that the trader's account does not fall into debt and avoid further losses.

Which one is better, liquidation or liquidation in the currency circle?

In the currency circle, liquidation and liquidation are both related to leverage trading. Which one you choose depends on your personal risk tolerance, trading strategy, and goals. Consider the following factors:

1. Advantages

The existence of the liquidation mechanism helps control traders' risks and prevent them from suffering excessive losses. When the account's margin level drops below a certain ratio, the system will automatically perform a liquidation operation to reduce the possibility of further losses. The implementation of forced liquidation is very important to maintain market stability and prevent excessive leverage and potential systemic risks.

Liquidation is a strong signal that a trader's account cannot maintain trading, indicating the need to liquidate the position. This signal can help traders know clearly when to exit, helping to avoid further losses. Compared with forced liquidation, liquidation is usually a liquidation operation automatically performed by the system after a trader's account reaches a critical point. Before this happens, traders have the opportunity to decide whether to close their positions.

2. Disadvantages

Traders cannot control the specific timing of liquidation during liquidation, which may result in being forced to close positions when the market fluctuates in the short term and unable to wait for more favorable market conditions.

If the market price fluctuates greatly in an instant, the liquidation price at the time of liquidation may be far from the expected price, resulting in a larger liquidation that may have an impact on the market and trigger systemic risks.

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