Bitcoin contract trading attracts numerous participants, which provides opportunities to leverage for potentially high returns. However, the inherent risk of contract trading lies in forced closing of positions, commonly known as "losing of positions". A liquidation means that the trader's position is forced to close due to the loss of margin, which often loses most or even all of the initial margin. Understanding how to set up a liquidation warning and mastering skills to avoid forced liquidation is crucial to managing contract trading risks.

Setting up a liquidation warning is like setting up a safety net for trading accounts. It can promptly notify traders when risks are approaching, giving them the opportunity to take action to remedy, such as increasing margin or partial closing of positions, thereby avoiding or delaying the fate of forced closing. Different trading platforms provide different forms of early warning services.

Effectively managing risks and taking preventive measures can significantly reduce the possibility of triggering forced closing. Contract trading does not rely solely on market judgment, but rather on strict risk control discipline.

Understand the contract liquidation mechanism

1. Contract transactions adopt margin system. Traders do not need to pay the full amount of the contract value, but only pay a small portion of margin to open a position. This part of the margin is used to cover potential losses.

2. The trading platform will set a maintenance margin rate. This is the minimum margin level required to maintain the current position. Forced closing is triggered when the margin ratio of the account (usually calculated by the account net value divided by the used margin) is lower than this maintenance margin ratio.

3. When the market price moves in a direction that is not conducive to the position, the floating loss of the account increases, resulting in a decrease in the account net value and a decrease in the margin ratio. Once the margin rate reaches the platform's maintenance margin rate threshold, the system will automatically initiate the forced closing process and forcefully close the position at the market price.

Set up a risk warning for liquidation

1. Most mainstream cryptocurrency trading platforms provide built-in early warning of liquidation. Traders can usually find relevant options in the account settings or risk management interface.

2. These warnings can usually be sent in a variety of ways, including email, SMS or App Push Notification. Traders should ensure that the contact information bound to their account is accurate and effective , and enable the corresponding notification permissions.

3. The warning triggering mechanism may be based on different indicators, such as when the margin rate of the account drops to a preset warning level (higher than the maintenance margin rate), or when the estimated liquidation price of the position is close to the current market price to a certain extent.

4. Some advanced traders or traders using third-party tools may set more personalized warnings, such as setting reminders at specific price points or margin rate levels, so that there is more time to respond before the risk actually comes.

A strategy to avoid forced closing

1. Controlling the leverage multiple is the most direct way to reduce the risk of liquidation. Using lower leverage means more margin is needed to maintain the position, thus opening the distance between the current price and the liquidated price.

2. Rationally manage position size. Do not use too much of the funds in the account to use a single highly leveraged position. Diversified investment in contracts in different directions or different varieties can diversify risks.

3. Continuously monitor the margin rate of the account. When the market fluctuates in an unfavorable direction, it is considered to add margin in time (commonly known as "adding money") to increase the margin rate, thereby reducing the risk of liquidation.

4. Setting a stop loss order is a key tool to limit losses and prevent losses. Set a reasonable stop loss price when opening a position or shortly after opening the position. Once the market price reaches this price, the position will automatically close the position to avoid further expansion of the loss until the position is over.

5. Keep sufficient funds available in the account. This fund can be used to add margin in an emergency to provide buffers for positions facing the risk of liquidation. The liquidity of account funds is also important.

6. Pay close attention to market trends and events that may affect prices. Market news and macroeconomic changes may cause severe fluctuations, and understanding these factors in advance can help assess potential risks.

7. Avoid using excessive leverage to trade in severely volatile markets. The greater the volatility, the easier it is for the price to reach the liquidation line quickly.

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