The truth and risk analysis of Bitcoin contract liquidation

In the world of digital currency investment, Bitcoin is undoubtedly the most eye-catching star. However, as investors' enthusiasm for Bitcoin contract trading grows, liquidation occurs frequently, causing huge losses to many investors. So, how much is lost in Bitcoin contract liquidation? Will it be forced to close due to market fluctuations? Next, we will explore this topic in depth to help readers better understand the risks and opportunities of Bitcoin contract trading.

The way Bitcoin contracts are traded is significantly different from traditional stock or commodity trading. Contract trading usually allows investors to trade with leverage, which means they can control larger assets with less money. However, while leverage amplifies gains, it also amplifies risks. According to data, many investors suffered heavy losses from liquidation in contract trading due to market fluctuations. For example, in May 2021, the price of Bitcoin fell from nearly $65,000 to $30,000, causing billions of dollars in liquidation, and many investors lost most of their investments overnight.

The principle of liquidation is simply that when the balance of an investor's margin account falls below the maintenance margin requirement, the exchange will force liquidation. Take Bitcoin as an example. If an investor buys 1 Bitcoin with a 10x leverage, and the price of Bitcoin falls by more than 10%, his account will face the risk of liquidation. In this case, the exchange will automatically sell the Bitcoin it holds to make up for the loss. This forced liquidation mechanism is intended to protect the security of the exchange's funds, but it is a huge blow to investors.

So, how to avoid liquidation? First of all, investors should have sufficient understanding of the market, especially the study of technical analysis and market psychology. Many successful traders use various technical indicators, such as the relative strength index (RSI), moving average (MA), etc., to judge the market trend. In addition, reasonable fund management is also crucial. Investors should not invest all their funds in a single transaction, but should diversify their investments to reduce risks.

Another important strategy is to set a stop loss. Stop loss is a risk management tool that automatically closes a position to limit losses when the market changes unfavorably. For example, if an investor buys Bitcoin at $60,000, he can set a stop loss at $58,000. When the market price drops to $58,000, the system will automatically close the position to avoid further losses. This method can effectively protect investors' funds and reduce wrong decisions caused by emotional fluctuations.

However, despite various measures, the unpredictability of the market remains the biggest challenge for investors. The Bitcoin market is extremely volatile and is affected by a variety of factors, including policy changes, market sentiment, technical failures, etc. For example, in 2021, the Chinese government's tightening of regulation on cryptocurrencies led to market panic and many investors suffered large losses in a short period of time. These events fully demonstrate that despite tools such as stop loss, investors still need to be vigilant to market changes.

The liquidation of Bitcoin contracts is not an isolated incident, but a universal risk. To some extent, this reflects the volatility of the entire cryptocurrency market and the challenges it poses to investors. Many novice investors often lack awareness of the risks of contract trading when entering the market, and are easily attracted by the temptation of high returns, thus ignoring potential risks. According to statistics, about 70% of novice investors suffered a liquidation in their first transaction, resulting in heavy losses.

In order to better cope with the risks of Bitcoin contract trading, investors should strengthen their own learning and research. Understanding market dynamics, mastering technical analysis, and constantly summarizing experience and lessons are the keys to improving the success rate of transactions. In addition, choosing the right trading platform is also crucial. Some platforms provide a wealth of tools and resources to help investors conduct market analysis and risk management, while other platforms may be full of uncertainty and risks, and investors need to be cautious when choosing.

In the world of digital currency investment, it is equally important to adjust your mentality. Investors are prone to panic in market fluctuations and make wrong decisions. Therefore, only by keeping a calm mind and analyzing the market rationally can you find opportunities in fluctuations. Many successful investors will emphasize that a stable mentality and rational judgment are the keys to their success.

In general, the explosion of Bitcoin contracts is one of the inevitable risks in the digital currency market. Investors must fully realize this and adopt corresponding risk management strategies when trading contracts. By learning market knowledge, rationally allocating funds, setting stop losses and other means, investors can reduce the risk of explosion to a certain extent. At the same time, maintaining a good attitude and rationally analyzing market dynamics will help increase the success rate of transactions.

As Bitcoin and other digital currencies become more popular, more and more people are beginning to pay attention to this field. Although the market is full of opportunities, risks cannot be ignored. Only by deeply understanding the mechanism of liquidation and mastering effective risk management strategies can we be invincible in this ever-changing market. I hope that every investor can stay rational in Bitcoin contract trading and avoid suffering huge losses due to blindly following the trend.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

Before answering this question, let me talk to you about what a margin call is. A margin call refers to a situation where, under certain special conditions, the customer equity in an investor's margin account is negative. When the market changes significantly, if most of the funds in the investor's margin account are occupied by trading margin, and the trading direction is opposite to the market trend, it is easy to have a margin call due to the leverage effect of margin trading. After understanding the margin call, let's get back to the point. How much will a Bitcoin contract lose if it is liquidated? Will a Bitcoin margin call be liquidated? Below, I will tell you in detail how much a Bitcoin contract loses if it is liquidated? Will a Bitcoin margin call be liquidated?
 How much will you lose if a Bitcoin contract is liquidated?
How much loss will be caused by the liquidation of Bitcoin contracts depends mainly on how much the investor has invested. For example, the current price of Bitcoin is $18,000:
1. Suppose you use 10,000 yuan to open a 20x leverage to go long
2. Open 3 (1 hour) put options on the exchange for hedging (cost $200)
The first one is when Bitcoin rises by 5%, which means it rises by $900.
1. Go long with 20x leverage, and the contract will double, which means you will earn 10,000 yuan
2. The put option loses the principal, which is 200 USD (1,400 RMB)
3. 10,000-1,400=8,600 yuan (net profit)
The second scenario is when Bitcoin drops by 5%, which means it drops to $900.
1. Long position with 20x leverage, contract liquidation, loss of 10,000 yuan
2. 3 put options make a profit of 2,700 USD, or 18,900 RMB
3. 18900-10000-1400=7500 yuan (net profit)
 Will Bitcoin liquidation occur if it explodes?
When an investor encounters one of the following situations, the dealer will force the investor to close his or her position:
1. Forced liquidation due to failure to fulfill margin call obligations
According to the exchange rules, futures trading implements a margin system, and each transaction must pay a certain percentage of margin. When the market changes unfavorably, in other words, the market reverses and changes in the opposite direction, members or customers should deposit additional margin according to the trading rules and the contract. If a member or customer fails to fulfill the obligation of additional margin within the required time, the exchange has the right to force the member company to close the position held by the customer.
2. The position is too heavy and the position is liquidated
Most of these cases occur among novice investors. Because they have used simulated trading before, they are accustomed to using heavy positions to obtain huge profits at one time. However, they do not know that real trading is not like simulated trading. Personal trading funds are limited, while the market conditions of the Bitcoin market are unlimited. Therefore, they use a large proportion of leverage and heavy positions. Their risk resistance is very poor and they are too eager for quick success. If the market runs in the direction of the transaction, it will easily lead to a margin call and losses.
3. Frequent trading and being too impatient
The position should not be too heavy, and the number of transactions should not be too many. Do not think that frequent entry and exit and decisive trading can increase the profit ratio. The result is just the opposite. If investors are eager to make a profit and place orders casually or emotionally, it will increase the odds and unknowingly explode in the loss.
4. Not setting a stop loss
Stop loss is the biggest weapon for investors. If you strictly follow the stop loss setting for each transaction, you can effectively avoid investment risks and control the investment risks within an acceptable range without directly exploding your position. At the same time, setting is also a complex and repetitive process. In order to make stable profits, Xinyu believes that you also need to combine the stop loss position with your position adjustment, and also combine it with your operation cycle, and set the stop loss and take profit according to the trend of the day's market. For example: the range of stop loss can be narrowed in a volatile market; vice versa.
Through the above introduction, I believe that everyone has some understanding of the question of how much loss will be caused by the liquidation of Bitcoin contracts. The editor of the currency circle kindly reminds investors that before trading Bitcoin contracts, you can first look at the 4-hour chart to determine the trend and direction; then look at the 1-hour chart, pay attention to the trend of the transition period, and judge the trend of the next period. Only in this way can you ensure that you will not make basic mistakes when trading Bitcoin contracts.