I. What Is Liquidation?
Liquidation occurs when rapid market movements deplete an investor’s margin balance before they can deposit additional funds, forcing the exchange to close their leveraged positions to prevent further losses. This results in a "zeroed-out" account, commonly called a "liquidation" or "blowout."
Key Scenarios Leading to Liquidation (Based on CFFEX Regulations):
- Insufficient funds: Account equity falls below maintenance margin requirements.
- Position limits exceeded: Unadjusted oversized positions within stipulated timeframes.
- Regulatory penalties: Violations prompting forced closures.
- Emergency measures: Exchange interventions during extreme volatility.
Example: Bitcoin’s recent drop to $48,000 (April 26) triggered $252M in liquidations, affecting 45,000 traders within 24 hours (source:三方统计).
II. Bitcoin Leveraged Liquidation Explained
Bitcoin liquidation refers to losses surpassing an investor’s initial margin in leveraged trading, where borrowed funds amplify both gains and risks.
How It Happens:
- Margin call ignored: Prices move against the position, eroding collateral.
- Automatic closure: Exceeds tolerance thresholds set by platforms.
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III. Liquidation vs. Forced Liquidation
| Term | Definition | Outcome |
|----------------|---------------------------------------------------------------------------|------------------------------------------|
| Liquidation | Losses > account margin; positions closed to prevent debt. | Partial funds may remain. |
| Forced Liq. | Broker/exchange mandates closure due to policy breaches or extreme risk. | Possible negative balance (owes funds). |
Types of Forced Liquidations:
- Margin deficiency: Unmet margin calls.
- Regulatory breaches: Illegal position sizes or reporting failures.
- Rule changes: Sudden policy shifts (e.g., leverage adjustments).
IV. Liquidation vs. Closing Positions
- Liquidation: Involuntary closure by the platform due to margin collapse.
- Closing (平仓): Voluntary exit from a trade to lock profits/cut losses.
Risk Tip: Always set stop-loss orders to avoid unexpected liquidations.
V. Bitcoin Liquidation: Causes and Prevention
Why Traders Get Liquidated:
- Over-leveraging: High debt-to-equity ratios magnify losses.
- Market gaps: Sudden price jumps skip stop-loss triggers.
- Volatility: Bitcoin’s 10%+ daily swings exacerbate risks.
Prevention Strategies:
- Lower leverage: Use 2x–5x instead of 50x+.
- Monitor margins: Maintain buffer funds above requirements.
- Diversify: Hedge with inverse contracts or stablecoins.
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VI. Liquidation vs. Negative Equity ("穿仓")
- Liquidation: Margin exhausted; positions closed at zero.
- Negative Equity: Debt exceeds account value (owes money to broker).
Example: A trader using 100x leverage loses 101% of their margin, entering debt.
VII. Contract Liquidation in Crypto
Futures/contract liquidation follows the same principles but applies to derivatives like:
- Perpetual swaps (no expiry).
- Quarterly futures (fixed settlement dates).
Critical Note: Crypto’s 24/7 markets increase liquidation risks during off-hours.
FAQs
Q1: Can liquidated Bitcoin positions recover?
A: No—closed positions are irreversible. However, remaining funds (if any) stay accessible.
Q2: How do exchanges calculate liquidation prices?
A: Based on:
- Maintenance margin % (e.g., 0.5% for 100x leverage).
- Mark price (not last traded price) to prevent manipulation.
Q3: Is liquidation possible in spot trading?
A: Rarely. Spot trades use full collateral (no leverage), eliminating margin calls.
Q4: Why do liquidations spike during bull markets?
A: Short sellers betting against price surges get trapped, accelerating buy-back rallies.
Q5: How to track liquidation risks in real-time?
A: Use platforms like Bybit or OKX’s liquidation heatmaps showing vulnerable price levels.
Final Note: Bitcoin’s volatility demands disciplined risk management. Avoid over-leverage, diversify strategies, and stay informed to mitigate liquidation threats.
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