Forced Liquidation

Whenever a leverage position of a trader is forcefully closed by an exchange due to partial or complete loss in the initial margin of the trader, it is known as forced liquidation. This happens when the trader is unable to meet the requirement for his leveraged position. This means that the trader does not have the required funds to keep the position open. Liquidation can occur in both futures trading as well as margin trading.

The use of a leveraged position in futures or margin trading is considered highly risky, and at times, leads to the complete loss of the collateral if there is a price movement too far away from the target. Such positions often have volatile price swings leading to a fall into negative balance almost instantly. In such situations, the losses tend to surpass the maintenance margin, thereby making the losers liquidate. This is an automatic and involuntary process.

Many trading platforms allow the traders to calculate their liquidation price before they have entered any position. The binance liquidation calculator can come in handy to calculate the profit and loss, liquidation price, and the target price in advance.

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