In Margin trading, a forced liquidation occurs when fluctuations in token prices lead to the situation where your assets can only cover the principal and interest of the loan. In such cases, all positions for that particular pair are automatically closed to prevent further losses and ensure loan obligations are met, preventing default.
In Futures trading, maintaining open positions requires traders to retain a specified percentage of their position’s value, known as the Maintenance Margin percentage. Failing to meet this maintenance requirement leads to the liquidation of the position by the liquidation engine, resulting in the loss of the maintenance margin.
Forced liquidation results in realized losses, making it imperative for traders to actively manage their positions and strive to avoid forced liquidation scenarios, thus maintaining a proactive approach to risk management.
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