What is the liquidation of digital currency?

There are many fluctuations in the digital currency market, and these fluctuations are always present on Bitcoin, Ethereum, and even stablecoins. For this reason, investors have more risk for buying and selling their capital than in other markets. So, there is liquid digital currency in this market, but what is meant by liquid digital currency and stay with us to answer this question.

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What is liquid digital currency?

What does liquidation mean? Basically, it refers to the process of selling digital currency assets to minimize losses, especially in the event of a market crash. The term liquid cryptocurrency is commonly used in the market when a trader’s position is forcibly closed. This is because the trader has lost part or all of the initial profit margin. In general, digital currency liquidation occurs when the margin leverage considered in a transaction decreases. This happens if the trader’s trading position is still open; This process causes the trader to lose.

Of course, when the market price falls, the exchange automatically closes open trades. This causes the trader’s initial capital to be affected, and even in the worst case of a price drop, the trader may lose all his assets. In general, as we have explained, digital currency liquid is divided into two types, partial and general, which we will explain further. Partial digital currency liquidity means that the transaction is closed as soon as possible and the trader loses part of his capital. The liquidity of the digital currency generally means that with a large fall in the price, it will lead to the closing of the transaction, in which case the trader will lose all his capital. After answering the question of what liquid means, we want to continue to discuss the difference between liquidity or liquefaction.

What are the differences between liquidity and liquidization?

These two words have some lexical similarities; But conceptually, they are very different. As we said, the concept of liquidation in the digital currency market means partial or total loss of a trader’s assets in transactions; But liquidity refers to the liquidity of a digital currency in the market. For example, the liquidity of Bitcoin is higher than other digital currencies. You can easily get this digital currency by reading the article on how to mine Bitcoin. Because the investor wants to buy and sell it at this stage. Of course, keep in mind that any digital currency exchange, if it has high liquidity, also has many users, which is considered a suitable option for its activity.

What is price liquid?

A price liquid is the point at which your leveraged position is automatically closed. The factors that affect this price are the maintenance margin rate, the leverage used in the digital currency price, and the account balance are also influential factors. Exchanges calculate the liquid price for you, which may be an average of several large exchanges. As you can see up to this point in the article, when the price of your cryptocurrency crosses the liquid price threshold, the cryptocurrency liquidation process is created. Also, digital currency prices are constantly changing, so it’s important to follow the latest news to stay informed of your profitable position, thereby avoiding potential losses.

Read more: Introduction of digital currencies related to gold

Bitcoin liquidation

A trader may need to buy bitcoins to fulfill some financial obligations or cover a short position. When this happens, the trader usually sells his bitcoins according to the market price; Of course, ignoring whether its price is higher or lower than the initial purchase price. But a trader may be forced to sell his bitcoins at a price lower than the market rate. This action may lead to the liquidity of the digital currency, which is basically determined by the exchange where it is sold. Also know that Bitcoin fell below 43,000 in early January, which resulted in the cancellation of over $812 million in futures trades and huge losses for cryptocurrency traders. This problem and tragedy happened because the traders lost the initial profit margin partially or completely.

Note the important point that the price of liquid digital currency can change according to the market conditions in any period of time. So if you are planning to sell your Bitcoin, then it is better to check the final price of Liquid before making a decision. This will help you to be completely sure of your transaction process. Also, if you are looking for the advantages of Bitcoin, you can refer to this page.

Read more: mxc exchange training

Prevent liquefaction

The concept of liquefaction in the digital currency market is to avoid losses in future contracts with exchanges. In order to compensate you for your loss, in this case, the exchange will cash out your principal and transfer it to your account. Trading futures is the method that professional traders choose to make a profit. This method has high reliability, but with success in trading, you will also get a lot of profit.

Note that futures are not a tool recommended for the novice or even professional trader. The reason is that the smallest mistake in making a transaction may cause you to lose your capital and all your assets in the exchange may be at risk.

However, leveraging futures contracts is not a tool recommended for novice or even professional traders. The slightest mistake in this may cause the loss of cryptocurrencies and jeopardize all your investment in the exchange. In addition, there is no way to compensate for this loss or negotiate with the exchange to cancel the contract. Also, in order to increase the efficiency and ease of buying and selling digital currencies, you can read the article What is Leverage or Leverage? read the

Frequently Asked Questions

What is liquefaction?

In simple language, liquidity determines the speed of buying and selling.

What are liquid currencies?

Coins like Bitcoin and Ethereum and stablecoins like Tether are Liquid.

What does the term “liquid” mean in the exchange?

It means that the trader has lost all his assets and the exchange in question has transferred all his assets to his account.

Conclusion

Digital currency liquidation refers to the process of selling a trader’s assets to minimize losses in the event of a market crash. Of course, in general, this term is used when a negotiator is forced to close his position. This is because the initial profit margin has lost its partial and total profit.