In futures trading, due to significant market fluctuations, the margin in your futures account cannot continue to maintain the Margin level. The event where your positioning must be position squaringIn futures trading, due to significant market fluctuations, the margin in your futures account cannot continue to maintain the Margin level. The event where your positioning must be position squaring
לִלמוֹד/Trading Guide/Futures/A must-read for beginners! How to prevent liquidation in futures trading?
A must-read for beginners! How to prevent liquidation in futures trading?
In futures trading, due to significant market fluctuations, the margin in your futures account cannot continue to maintain the Margin level. The event where your positioning must be position squaring is called forced position squaring, which is commonly known as liquidation.
If you want to know more about liquidation, you can read the content " What is forced position squaring " to understand.
Abstract of this article:
In cryptocurrency futures trading, liquidation is a high-risk event that comes with high returns. The fundamental reason for liquidation is that the fluctuation range of market prices exceeds the upper limit that the trader's futures account asset balance can bear, resulting in forced position squaring due to the inability to timely replenish margin.
In order to avoid being blown up by futures positioning, investors can gradually improve their risk control ability by using leverage reasonably, setting stop-loss and take-profit, maintaining sufficient margin, formulating and implementing scientific trading strategies, managing positioning well, and paying attention to market volatility.
The futures trading system of C. MEXC is a multi-layer and multi-cluster system architecture. It is a high-performance trading engine developed by top developers with banking technology expertise. It can complete 1.40 million transactions per second, with breakthrough efficiency and performance. At the same time, it has first-class trading liquidity in the industry, which can easily cope with special situations such as sudden increase in trading volume in extreme market conditions.
1. What are the reasons for the liquidation of cryptocurrency futures positioning?
The most fundamental reason for liquidation is that the fluctuation range of market prices exceeds the upper limit that the trader's futures account asset balance can bear, resulting in forced position squaring due to inability to timely replenish margin. It can be further divided into the following reasons:
Insufficient funds: When the funds in your margin account are not enough to pay the Maintenance Margin at the current market price, liquidation will occur.
Market Volatility: Sharp market fluctuations can affect your margin account. If the underlying asset price moves too much in the opposite direction of your futures position, your positioning may be forced to squaring.
Strategy Error: Overly aggressive investment strategies and operational errors may lead to liquidation. Futures trading has the characteristics of high returns and high risks. Traders who pursue profits while using excessive leverage or large positioning will lead to a low margin ratio, weak resistance to market price fluctuations, and increased risk of liquidation.
Market trends are often irregular, and no one can accurately predict future ups and downs. Influenced by short-term market trends, traders often believe that the trend will continue and increase their positioning, or believe that the trend will reverse in the future. These empirical strategies may further expand the original positioning losses and ultimately lead to liquidation.
No stop loss: Many traders are used to watching the market and not setting stop loss , choosing whether to position squaring according to market changes, and some traders themselves do not have the habit of setting stop loss. These habits can easily lead to liquidation if they encounter large fluctuations in the market.
High Leverage: High leverage amplifies losses by the same amount as potential gains.
2. How to avoid futures positioning being liquidated?
Before trading futures, due to the high volatility of futures trading, you need to have good investment expectations and risk management. This way, even if there are significant changes in the market, your losses will be within a controllable range.
If you are new to futures, you can also practice trading by using futures demo plates , or use copy trading strategies for initial attempts, gradually mastering trading skills before trading.
2.1 Reasonable use of leverage
2.1.1 choose the appropriate leverage
High leveragecan amplify profits, but also significantly increase the risk of liquidation.
Suggestion : Beginner traders use lower leverage (e.g. 3-5x) rather than maximum leverage (e.g. 50x or more).
2.1.2 calculate liquidation price
Before opening a position, calculate the liquidation price (i.e. the price at which the margin is zero when the price is triggered) and adjust the leverage ratio according to your risk tolerance. At MEXC, in order to make it easier for users to calculate the liquidation price and expected return of their positioning, a calculator function has been launched. For detailed usage, please read How to use the futures calculator .
Here we need to emphasize a key concept - Maintenance Margin Rate.
The Maintenance Margin rate is calculated based on the user's positioning size, not the leverage multiple. This means that the Maintenance Margin rate is not affected by the leverage multiple. The system divides the positioning size into multiple levels based on the basic risk limit and increasing threshold of the futures. Each level corresponds to a different Maintenance Margin rate; the larger the positioning, the higher the Maintenance Margin rate.
Maintenance Margin rate can be understood as the "locked" margin portion used to manage risks. The larger the positioning, the higher the Maintenance Margin rate, and the more locked margin.
For example, if the Maintenance Margin rate corresponding to a certain positioning held by user Alice is 1%, and 100 USDT of all assets in the futures account are used as margin, it can be understood that 1 USDT will be locked. When the loss reaches 99 USDT, the positioning will be forcibly liquidated instead of waiting until the loss reaches 100 USDT. This helps the platform manage risks more effectively.
2.2 Set Take Profit and Stop Loss
When trading futures, you need to set stop-loss points when opening a position or for trades that have already been opened, so that your losses can be reduced to an acceptable range in case of fluctuations, effectively avoiding liquidation.
2.2.1 set stop price
Stop loss order : automatic position squaring when the price reaches the predetermined level to avoid further expansion of losses.
Suggestion : The stop loss price should be set before the liquidation price, such as automatic stop loss when losing 10% -20%.
2.2.2 Set Take Profit Price
Take Profit Order : Automatically position squaring when the target profit is reached, locking in profits and preventing losses caused by sudden market reversals.
2.3 Maintain sufficient margin
2.3.1 Periodic Supplementary Margin
Insufficient margin is the direct cause of liquidation. It is recommended to replenish margin at any time when the market fluctuates greatly to reduce the risk of liquidation.
2.3.2 Use cross margin mode
Cross margin mode allows the system to call the balance in the account as margin, which helps to extend the liquidation time.
The isolated margin mode limits the risk of individual positioning and is suitable for novice traders.
2.4 Develop and implement scientific trading strategies
Make a trading plan: Before trading, make a detailed plan including entry price, target price, stop loss price and capital investment ratio.
Risk tolerance assessment: Before futures trading, clarify the proportion of a single loss amount to the total account funds.
Use Margin Level Warnings: Some platforms provide margin level warnings to help you stay informed of account risks.
2.5 Good positioning management
Avoid full position trading: Don't put all your money into a single trade.
Diversification: Divide funds into several parts and trade them in different currencies to reduce the impact of fluctuations in a single market.
Regular review: Analyze trading records, optimize leverage and positioning selection.
2.6 Focus on market volatility
2.6.1 choose low volatility trading
When the market is volatile (such as when economic data is released or major events occur), it is easy to cause drastic price changes. It is recommended to avoid using high leverage positioning during this period.
2.6.2 focus on funding rates
In perpetual futures, the funding fee may lead to an increase in holding costs, especially when the fee is high. Continuing to hold positions may increase the risk of liquidation.
2.7 Choosing a reliable futures trading platform
High-performance platform : Avoid forced position squaring due to platform lag and latency. MEXC's trading system is a multi-layer and multi-cluster system architecture, developed by top industry developers with banking technology expertise. The high-performance trading engine can complete 1.40 million transactions per second, with breakthrough efficiency and performance.
Risk management tool : Choose a trading platform that provides stop-loss orders, risk warnings and other functions.
3. How to deal with a margin call in futures trading?
3.1 Stay calm and accept reality
After liquidation, investors first need to adjust their mentality and avoid emotional operations.
3.1.1 accept losses and avoid denying reality
- Face the problem: The liquidation has occurred, and the loss in capital is a fact. Do not try to make up for the loss quickly through emotional operation, which will only further expand the problem.
- Avoid self-blame: Breaking out is a risk in trading, and many excellent traders have experienced similar situations in their careers. Don't blame yourself entirely for failure, but see it as a learning opportunity.
3.1.2 stabilize sentiment and suspend trading
- Avoid impulsive trading: After a margin call, emotions can easily get out of control and one may re-enter the market without fully analyzing it. This "retaliatory trading" usually leads to greater losses.
- Rest adjustment: give yourself some time to calm down, re-examine your trading strategy and psychological state, and avoid making decisions when your emotions are unstable.
3.2 Review and problem analysis
The occurrence of liquidation is usually the result of multiple factors working together. By reviewing, the root cause of the problem can be identified, providing valuable experience for future trading.
3.2.1 analyze the reasons for liquidation
- Market volatility: Did you underestimate the magnitude of market volatility? For example, did you ignore the impact of important economic data or unexpected events?
- Excessive leverage: The use of excessive leverage may lead to overly sensitive positioning, and small fluctuations may cause liquidation.
- Positioning too heavy: Have you invested too much money in a single transaction, causing the account to be unable to withstand large price fluctuations?
- Improper stop loss setting: Is the stop loss not set, or is the stop loss too tight or too loose?
- Emotional operation: Did you deviate from the original plan because of greed or fear?
3.2.2 find trading system problems
- Trading Plan: Is there a clear trading plan? Does the plan include entry points, stop loss points, target points and risk management strategies?
- Risk control strategy: Have reasonable risk control mechanisms been established, such as the maximum risk ratio for each transaction?
- Market analysis: Have market trends and technical indicators been fully analyzed, or have you blindly followed market sentiment?
3.2.3 record the transaction log
Record the background, decision-making process, results, and lessons learned of each transaction to form a detailed transaction log. This helps to avoid repeating mistakes in future transactions.
3.3 Adjust fund management and trading strategies
After liquidation, reasonable fund management and trading strategy adjustment are the key to rebuilding confidence and restoring profitability.
3.3.1 re-evaluate money management
- Leverage Reduction: Use appropriate leverage (such as 2x-5x) to reduce the volatility of the account and the risk of liquidation.
- Control positioning: Ensure that the capital investment for each transaction does not exceed 1% -2% of the total account funds. Even if there are continuous losses, funds can be retained to continue trading.
- Increase margin rate: Keep a high proportion of available margin in your account to cope with market volatility.
3.3.2 Optimize Trading Strategies
- Set stop loss: at each opening, strictly set a reasonable stop loss point, and resolutely execute.
- Building positions in batches: Avoid heavy positions at one time, adopt the strategy of building positions in batches, and reduce the impact of market fluctuations.
- Focus on risk/reward ratio: Ensure that the ratio of expected return to latent risk for each trade is at least 2:1 or higher.
3.3.3 learn more trading skills
- Technical Analysis: In-depth study of technical indicators (such as RSI, MACD, Bollinger Bands) and chart patterns to improve the judgment of market trends.
- Fundamental Analysis: Focus on macroeconomic data, policy changes and industry dynamics to understand the drivers behind the market.
- Trading Psychology: Learn how to control your emotions and avoid deviating from your trading plan due to greed or fear.
3.4 Develop a review and improvement plan
The liquidation is a profound lesson, and investors need to develop a clear review and improvement plan to ensure that future transactions are more stable.
3.4.1 set realistic goals
- Short-term goals: When resuming trading, set small but achievable goals, such as earning 1% -2% per week, and gradually regain confidence.
- Long-term goal: Focus on improving trading skills and stable growth of funds, rather than doubling or getting rich quickly in the short term.
3.4.2 regular review
- Weekly Review: Take time each week to review your trading history and analyze the reasons for your success and failure.
- Summary of experience: Develop specific improvement measures for common problems (such as overtrading, missed stop loss), and strictly implement them in the next trade.
3.4.3 avoid repeating mistakes
Record the reasons for liquidation and post them on the trading table as a reminder. Before each transaction, check whether these risk points have been touched again.
3.5 Psychological repair after liquidation
Liquidation not only causes losses to funds, but also may seriously affect investors' psychological state. Rebuilding confidence is the key to trading recovery.
3.5.1 accept that liquidation is part of the deal
- Understand Risk: Being liquidated does not mean failure, but is one of the challenges that may be encountered during the trading process. Top traders have experienced losses, but they have achieved success through continuous learning and improvement.
- Face up to your mistakes: A margin call is an opportunity for self-reflection and improvement to avoid similar situations in the future.
3.5.2 rebuild trading confidence
- Lower target: When resuming trading, lower the expected return target and focus on accumulating small profits.
- Demo Trading: Restore familiarity and confidence in the market through demo trading before resuming live trading.
- Gradually increase positions: start with small amounts of capital and gradually increase positioning to ensure that each transaction is within a controllable range.
Recommended reading:
- Why choose MEXC futures trading? Learn more about the advantages and features of MEXC futures trading to help you seize the opportunity in the futures field.
- How to participate in M-Day? Master the specific methods and skills to participate in M-Day, and don't miss the futures bonus airdrop of 70,000 USDT every day
- Futures Trading Operation Guide (App End) Learn more about the operation process of futures trading on the App end, so that you can easily get started and play futures trading.
Currently, MEXC platform has launched a 0 fee activity . By participating in this activity, users can significantly reduce transaction costs and truly achieve the goal of "saving more, trading more, and earning more". On the MEXC platform, you can not only enjoy low-cost transactions with this activity, but also keep up with market trends, keenly capture every fleeting investment opportunity, and start a journey of wealth appreciation.
Disclaimer: This material does not provide advice on investment, taxation, law, finance, accounting, consulting, or any other related services, nor is it advice on buying, selling, or holding any assets. MEXC Novice Academy provides information for reference only and does not constitute any investment advice. Please ensure that you fully understand the risks involved and invest cautiously. All investment behaviors of users are not related to this site.
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