Forced Liquidation
A forced liquidationA forced liquidation on a cryptocurrency exchange is when a trader's position is automatically closed out by the exchange due to insufficient margin. This happens... on a cryptocurrencyCryptocurrency is a digital or virtual currency that uses cryptography for security and operates independently of a central bank. Cryptocurrencies use decentralized technology called blockchain... exchangeA cryptocurrency exchange is an online platform that allows users to buy, sell, and trade cryptocurrencies. These exchanges serve as intermediaries between buyers and sellers,... is when a trader’s position is automatically closed out by the exchange due to insufficient margin. This happens when the price of the asset being traded moves in the opposite direction of the trader’s position, causing the trader to lose more money than they have available in their account.
For example, let’s say you’re trading BitcoinBitcoin is like a digital treasure that you can use to buy things online. It's like having a secret code that only you know, and... on BitMEX with a leverage of 100x, which means that you have a position that is worth 100 times more than the amount of Bitcoin in your account. If the price of Bitcoin moves against your position, the amount of Bitcoin in your account may no longer be enough to cover the losses. If this happens, BitMEX will automatically close out your position to prevent further losses, which is referred to as a forced liquidation. If this happens to you, it can be a very stressful experience, especially if you were using a high leverage and the market moved quickly against you.