What is liquidation in futures?

In the name of god:what is liquidation in futures? In futures trading you can use a tool called leverage to open trading position. In a simple word, when you choose a certain leverage in the exchange to open a trading position, Actually you borrow a certain amount from the exchange.

There fore,you will open a trading position with more assets than your initial capital. Here exchange in exchange for the amount it gives you As a loan the receives a deposit from you.This collateral is know as Margin.

IF the digital currency price changes against the direction of your trading position, so to speak you lose in the transaction. As soon as the amount loss is equal to the amount of margin, the exchange will automatically close you trading position.

After closing the deal All margins withdrawn for the amount that the exchange has lent this is know as digital currency liquidation.

What is liquidation in futures:

Example of liquidation in digital currency futures transaction :

to clarify the meaning of liquidation in digital currency let’s look at an example of a futures transaction. Imagine a trading position with a margin of 100$ And you open the lever 10 times in the long direction.in a simple word, you borrow 100$ of your capital And 900$ of capital from the digital currency exchange And you open a trading position worth 1000$.

Now Imagine that the price of digital currency will decrease. In other words, price changes occur in the opposite direction of the long position. In this case you will be at a loss. In your opinion when will this trading position be liquidation? Considering that the trading leverage is 10times selected, buy reducing the price of digital currency 10%, practically the amount of loss in equal to the margin of 100$.

In this case, the exchange automatically closes the position and takes the margin amount. As you have seen, the choice of leverage is very important in the liquidation of digital currency.

What is liquefaction?

It is a term in financial markets which in Persiain language be referred to as liquidation of trading position, ofcourse in common literature among Iranian traders,the term liquefaction is usually used.

This word in economic literature means liquidity that is not our concern here.(As long as you buy and sell digital currencies in Spot transactions, under no circumstances will you deal with this concept.

The concept of digital currency liquidation is related to the Two areas of futures trading and borrowing in DEFI project.

:What is the Role of leverage in futures trading

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