Understanding the risk of the settlement in the margin trade
In the cryptocurrency world, he has experienced significant growth and volatility over the years, making it a profitable market for merchants. However, this growth poses a greater risk, especially in margin trade. One of the most significant risks related to Margin negotiations is liquidation.
What is liquidation?
The arrangement occurs when the dealer’s position in the cryptocurrency fell below a certain limit, which caused the account balance to be depleted or reduced. This can happen for several reasons, including:
- Unrealistic expectations: Excessive and many risks, which leads to a sudden fall in the price of cryptocurrency.
- Volatility of price: a sudden and drastic drop in price that makes merchants difficult to regain their losses.
- Market Manipulation: Use false or manipulated orders to reduce prices and increase losses.
Risks related to margin negotiations
Cover trade includes lending broker money to negotiate cryptocurrencies. This increases the potential risk of settlement as the trader’s account balance is now linked to the value of different positions. Some risks related to hedging trade are as follows:
* Decreased profit!
* Extension of rooster : The use of a higher leverage increases the potential of significant losses as low price movement can result in significant profits or losses.
* Settlement Risk : If the trader’s account balance falls under a certain limit, its position can be settled, which results in the loss of all amounts.
Municipal risks
When the position of the dealer is resolved, they risk losing not only their initial investment, but also the additional funds borrowed from the broker. This can result in significant financial losses that can be difficult to recover.
Some specific risks associated with sorting are as follows:
* Losses : The dealer is the most quiet concern for the loss of the entire balance of the invoice as well as the additional funds borrowed.
* Financial Voltage : Settlement of positions can put significant pressure on the trader’s financial resources, making it difficult to cover housing costs or other financial obligations.
* Regulatory Risks
: In some cases, a settlement may trigger measures or regulatory fines, such as fines or commercial accounts.
Risks to alleviate
Although there is no way to completely eliminate the risk of the settlement in the Margin trade, there are measures that merchants can take to alleviate these risks:
* Diversify : Distribution of investments can contribute to reducing the general exposure of risk in various cryptocurrencies and asset classes.
* Use Stop Stop Orders : Determining the stop order can limit losses if the price of cryptocurrency moves to the trader’s position.
* Observation of market conditions : Trends and market feel can help merchants change their strategy to minimize risks.
Conclusion
The Margin Affairs is a high risk and high reward activity that requires careful consideration and planning. Although there is a certain level of risk of the market, it is essential that merchants understand the risks and measures that are liquidated to alleviate them. By diversification of investments, the monitoring of STOP orders and market conditions can reduce their exposure to these risks.
More sources
* Bitcoin negotiating guide : A comprehensive guide to buying and selling bitcoin, including risk reduction strategies.
* Margin Trade 101 : Introduction to Margin Trade, which covers the basics of leverage, position and liquidity.