What are the most common reasons for crypto liquidations?

4 answers

• Dec 25, 2021 · 3 years ago
  One of the most common reasons for crypto liquidations is excessive leverage. Many traders use leverage to amplify their potential profits, but it also increases the risk of losses. If the market moves against their position, they may be forced to liquidate their holdings to cover their losses. It's important for traders to manage their leverage carefully and set appropriate stop-loss orders to mitigate the risk of liquidation.
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• Dec 25, 2021 · 3 years ago
  Another reason for crypto liquidations is market volatility. Cryptocurrencies are known for their price volatility, and sudden price drops can trigger liquidations. When the market experiences a sharp decline, the value of traders' positions may fall below the liquidation threshold set by the exchange, leading to automatic liquidation. Traders should be aware of the potential risks associated with volatile markets and consider implementing risk management strategies.
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• Dec 25, 2021 · 3 years ago
  BYDFi, a leading cryptocurrency exchange, has observed that improper risk management is a significant factor in crypto liquidations. Traders who fail to set stop-loss orders or use appropriate risk management techniques are more vulnerable to liquidation. It's crucial for traders to have a clear risk management plan in place, diversify their portfolio, and avoid overexposure to a single asset. BYDFi provides educational resources and tools to help traders improve their risk management skills.
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• Dec 25, 2021 · 3 years ago
  In addition to leverage, volatility, and risk management, margin calls can also lead to crypto liquidations. When the value of a trader's collateral falls below a certain threshold, the exchange may issue a margin call, requiring the trader to add more funds or close their position. If the trader fails to meet the margin call, the exchange may liquidate their position to cover the potential losses. Traders should closely monitor their margin levels and be prepared to meet margin requirements to avoid liquidation.
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