When you hear the word “liquidation,” it’s usually in the context of business bankruptcy. But in the world of cryptocurrency trading, liquidation has a very different meaning.
In the most basic sense, liquidation is when a trader’s position is closed automatically by the exchange to prevent further losses. This can happen when the price of a cryptocurrency falls below a certain level, triggering a stop-loss order that sells the position at the current market price.
While stop-loss orders are designed to limit losses, they can also result in traders losing more money than they intended. This is because when a large number of stop-loss orders are triggered at the same time, it can cause a sudden and sharp drop in price, known as a flash crash.
NOTE: WARNING: Liquidation prices on Binance can be highly volatile and unpredictable. It is important to understand the risks associated with trading at liquidation prices on Binance before getting involved. As with any form of trading, there is always a risk that you could lose your entire investment. Therefore, it is essential to only trade with funds you can afford to lose and use stop loss orders to protect yourself from potential losses.
Flash crashes are relatively rare, but they do happen. In January 2018, for example, the price of Ethereum fell from around $1,100 to just $0.
10 in a matter of seconds on the GDAX exchange.
Because of events like these, some traders choose to set their stop-loss orders well above the liquidation price. This gives them some breathing room in case of a flash crash, but it also means they may miss out on some profits if the price does eventually rebound.
So, what does liquidation price mean in Binance? It simply refers to the price at which a trader’s position will be closed automatically to prevent further losses. Traders should be aware of the risks associated with flash crashes and set their stop-loss orders accordingly to avoid being caught off guard.
6 Related Question Answers Found
When it comes to cryptocurrency exchanges, one of the most popular platforms is Binance. As such, it’s important for users to understand all aspects of the platform – including the liquidation price. So, what is liquidation price on Binance?
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