Margin trading and Futures trading can amplify profits, but risks come with them, and knowing more about them will help you make proper investment strategies. Here I help you know how to reduce the risks.
What’s a Forced Liquidation?
In Margin trading, it triggers a forced liquidation when changes in the token price result in all your assets can only repay the principal and interest of the loan. All the positions of this pair are closed automatically to prevent further loss and ensure you do not default on your loan.
In Futures trading, to keep positions open, it requires you to hold a percentage of the value of their position, i.e., the Maintenance Margin percentage. If you cannot fulfill the maintenance requirement, your position will be taken over by the liquidation engine and liquidated, and the maintenance margin lost.
A forced liquidation brings realized loss, so try to avoid forced liquidation.
The best way to avoid forced liquidation is to use stop-loss and low leverage to limit losses from your positions, as well as keep adequate margins in your account.
Setting a Stop-Loss Order
You define Stop-loss as an advance order to sell an asset when it reaches a particular price point. A stop-loss limits you any loss in a position.
So how can you set a stop-loss order?
For the margin trading market: Login KuCoin, click “trade”, “margin trading”, and then input the trading password. Next, choose “Stop Limit” or “Stop Market”. Input the “Stop Price”, “Price”, and “Amount”, then click “Buy” or “Sell” to set the stop-loss order.
For the futures trading market: Login KuCoin Futures, click “Take Profits & Stop Loss” in the positions list, set the Stop loss price, select the trigger type (Last Price / Mark Price / Index Price), then click “Confirm” to set the stop loss.
Selecting Low Leverage
The default leverage is 10x on KuCoin Margin trading, and it adopts the cross margin model, which means all the assets in your margin account will be used as margin. You can, therefore, control risks according to your position ratio. As long as the debt ratio is moderate, the possibility of liquidation is very low.
On KuCoin Futures, it divides leverage into initial leverage and actual leverage. The initial leverage is the leverage multiple manually set when opening a position. These leverage multiples are from 0.01x to 100x. After opening a position, the actual leverage will change as the unrealized profit-and-loss changes. Then, the leverage multiple can be a decimal, even up to 100x. With high leverage, even small market volatility may trigger forced liquidation, so you can reduce the risk of forced liquidation by using low leverage.
Keeping Adequate Margins in your Account
KuCoin Margin adopts the cross margin model, so all assets (regardless of currency) in the margin account will be used as a margin to avoid forced liquidation. The advantage of this model is that there is no need to be forced to replace the tokens currently held in orders to borrow other currencies, and the entire cross margin account as a position will only have a debt ratio. As long as the debt ratio is at a proper level, there is no risk of being forced to liquidate.
To avoid forced liquidation, Auto-Deposit Margin is available on KuCoin Futures. When you enable Auto-Deposit Margin mode, it will add funds in the Available Balance to the existing position whenever liquidation happens, trying to prevent the position from being liquidated. However, there are also extreme cases. When the market is volatile, it may cause all your positions and the balance of your account to be lost. Use it with caution.
Disclaimer: This content is not financial advice, and for informational purposes.
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