In the cryptocurrency trading market, "liquidation" and "getting REKT" are two frequently mentioned important concepts. For new investors, understanding these concepts is crucial for risk control. This article will explain in detail what liquidation and getting REKT are, and how to avoid these risks.
What are Liquidation and Getting REKT?
Liquidation refers to the situation in the leveraged trading where a trader's account equity falls below the maintenance margin due to drastic market price fluctuations, resulting in forced position closing. For example, if you use 1000 USDT as margin with 5x leverage to go long on Bitcoin, it means you are actually trading with 5000 USDT. If the maintenance margin rate is 10%, then the maintenance margin is 500 USDT. When the market moves unfavorably, causing account losses to drop below 500 USDT, it will trigger forced liquidation. Let's look at a specific calculation example: with an initial margin of 1000 USDT, using 5x leverage to go long on BTC at an opening price of 30000 USDT/BTC, the actual position value equals 1000 USDT multiplied by 5, which is 5000 USDT. The amount of BTC that can be bought is 5000 USDT divided by 30000 USDT/BTC, equaling 0.1667 BTC. Assuming a maintenance margin of 10%, that's 5000 USDT multiplied by 10%, equaling 500 USDT. If the BTC price drops to 28500 USDT, the floating loss equals 0.1667 BTC multiplied by (28500 USDT minus 30000 USDT), resulting in a loss of 250 USDT. At this point, the account equity equals 1000 USDT minus 250 USDT, which is 750 USDT, still above the maintenance margin, not triggering liquidation. However, if the BTC price plummets to 27000 USDT, the floating loss equals 0.1667 BTC multiplied by (27000 USDT minus 30000 USDT), resulting in a loss of 500 USDT. The account equity becomes 1000 USDT minus 500 USDT, equaling 500 USDT, reaching the maintenance margin line, which will trigger getting REKT.
Getting REKT is the process that follows liquidation. When an account triggers liquidation conditions, the exchange forcibly takes over your position and conducts closing operations, this process is getting REKT. The purpose of getting REKT is to protect the interests of the exchange and other traders, preventing traders' losses from expanding and creating negative equity (losses exceeding margin). During the REKT process, the exchange will forcibly close your position at the current market price and charge certain liquidation fees. Any remaining margin (if any) will be returned to your account. It's worth noting that during severe market fluctuations, the liquidation price might be worse than the trigger price, which is known as "slippage". To avoid liquidation and getting REKT, traders should use leverage reasonably, avoid excessive leverage; set stop-loss positions to control risk; maintain sufficient margin, add margin when necessary; and diversify investments to avoid putting all funds in one position. Additionally, it's important to constantly monitor market trends and stay vigilant. To better understand and avoid liquidation risks, new traders are recommended to practice on demo accounts before real trading, familiarizing themselves with trading rules and risk management. Always remember: only invest what you can afford to lose and maintain a rational trading mindset. In the highly volatile cryptocurrency market, risk control should always be the top priority.
Conclusion
In summary, liquidation and getting REKT are inevitable risks in cryptocurrency leveraged trading, but as long as we fully understand their mechanisms and implement proper risk management, we can better protect our assets while trading. Remember, in the cryptocurrency market, maintaining caution and rationality is more important than pursuing short-term high returns. Reasonable use of leverage, strict implementation of stop-loss strategies, and maintaining sufficient margin reserves are all effective means to avoid liquidation. For novice investors, it's recommended to start with small-scale trading and gradually increase trading size after accumulating sufficient experience. Only in this way can one develop steadily in this market full of opportunities and risks, achieving long-term stable investment returns.
