Can a Trader Prevent Liquidation Once the Process Has Started?
Once the exchange's liquidation engine is triggered, the process is generally automatic and cannot be stopped by the trader. However, a trader can take pre-emptive action to prevent the trigger.
By adding more collateral to the margin account (a process called "topping up margin") before the mark price reaches the liquidation price, the trader lowers the liquidation price and saves the position.
Glossar
Auto Liquidation Process
Mechanism ⎊ The Auto Liquidation Process functions as a critical risk management mechanism designed to prevent a trader's account equity from falling below zero.
Fund Liquidation Process
Procedure ⎊ The Fund Liquidation Process is the structured, formal protocol for systematically winding down a fund's operations, involving the conversion of all remaining cryptocurrency and derivative holdings into base currency.
Crypto Risk
Risk ⎊ The potential for financial loss or adverse deviation from expected outcomes stemming from exposure to the volatile cryptocurrency market and its associated derivative instruments.
Forced Position Closure
Trigger ⎊ Forced Position Closure represents an automated liquidation event initiated when an investor’s margin balance falls below the maintenance requirement, common in leveraged cryptocurrency derivatives trading.
Full Liquidation Process
Process ⎊ The full liquidation process describes the complete closure of a leveraged position by a derivatives exchange when the trader's margin falls below the maintenance threshold.
Tiered Liquidation Process
Process ⎊ The tiered liquidation process is a structured approach to liquidating collateral in stages rather than all at once.
DEX in Liquidation Process
Trigger ⎊ DEX in Liquidation Process refers to the automated sequence initiated on a decentralized exchange when the collateral backing a leveraged position, often a crypto derivative contract, falls below the required maintenance margin threshold.
Margin Safety Buffer
Mitigation ⎊ A Margin Safety Buffer within cryptocurrency derivatives functions as a preemptive capital reserve, designed to absorb potential losses stemming from adverse price movements or counterparty credit risk.
Liquidation Process in Dex
Execution ⎊ This describes the forced closing of an open, under-margined position within a decentralized exchange environment.
Crypto Futures
Future ⎊ Crypto futures represent standardized contracts obligating the buyer to purchase or the seller to deliver a specific cryptocurrency at a predetermined price and future date.