At 15:00 UTC on Wednesday, the much-anticipated Zhejiang testnet for staking withdrawal went live on Ethereum’s Beacon chain. Zhejiang will enable the testing of the Ethereum Improvement Proposal (EIP) 4895 which allows for staking withdrawals. This is in preparation for the network’s next major update, the Shanghai hard fork slated to launch sometime in March. Users Can Make Simulated Withdrawals with Zhejiang In a tweet yesterday, DevOps engineer at Ethereum foundation Barnabas Busa gave details about the Zhejiang testnet slated…
What Does “Getting Liquidated” Mean in Crypto Trading?
In crypto trading, “liquidation” refers to the process of closing out a leveraged position (a position in which borrowed funds are used to amplify potential gains or losses) due to the value of the position falling below a certain level, known as the “maintenance margin.” This is done to limit the losses of the trader or the trading platform.
When the position’s value falls below the maintenance margin, the trading platform automatically closes out, and the trader’s account is said to be “liquidated.” Of course, this can occur in any market, but leveraged trading can increase liquidation risk if the market moves against the trader’s position.
Here’s an example of how liquidation works in crypto trading:
A trader wants to open a leveraged position of $10,000 in Bitcoin. The trading platform requires a maintenance margin of 10%, so the trader needs to have at least $1,000 in their account as collateral.
Now let’s say the price of Bitcoin falls by 20%, so the value of the trader’s position is now only $8,000. Since the position’s value is below the maintenance margin of $1,000, the trading platform will automatically close out the position and liquidate the trader’s account.
The trader will lose all the money in their account and have to cover any additional losses to the trading platform. This is the risk of leveraged trading and why the maintenance margin is in place.
NB: The examples above are just hypothetical scenarios, and the specific details, such as maintenance margin, leverage, and trading platform, will vary.
How to Avoid Getting Liquidated
Here are a few ways to avoid getting liquidated in crypto trading:
- Use proper risk management: One of the most important ways to avoid getting liquidated is to use proper risk management techniques. This means setting stop-loss orders and taking profits at predetermined levels to limit potential losses.
- Monitor your position: Always keep an eye on your leveraged positions and monitor the market conditions. Be aware of any sudden changes in the market, such as a sharp price drop, and take action to limit your losses if necessary.
- Choose a trading platform with a higher maintenance margin: Some trading platforms require a higher maintenance margin, which means the value of your position can fall by a greater percentage before getting liquidated. Therefore, choosing a higher maintenance margin platform can provide more breathing room for your position.
- Do not over-leverage: Leveraged trading can amplify gains, but it also amplifies losses. Therefore, it’s important to use leverage responsibly and not over-leverage your position.
- Understand the market: Understand the market you are trading in, be familiar with the conditions that can affect the crypto market, and have the plan to handle them.
Even with the best risk management, there is always a chance of getting liquidated. In addition, the crypto market is highly volatile, so only investing what you can afford to lose is important.
An Overview of Different Cryptocurrency Scams
Cryptocurrency scams are fraudulent schemes that are becoming increasingly common as the popularity of cryptocurrencies continues to grow. They can take many forms and are often designed to appear legitimate investment opportunities or exchanges. Unfortunately, these scams can cause significant financial losses for individuals and harm the reputation of the cryptocurrency industry as a whole. It is crucial for anyone considering investing in cryptocurrencies to be aware of the various types of scams and to take steps to protect themselves.…
What Are Crypto Data Aggregators?
Crypto data aggregators gather data from multiple sources to provide comprehensive and real-time information about the cryptocurrency market. They pull data from various exchanges, trading platforms, and other sources to centralize the information and present it in a user-friendly format. The data includes cryptocurrency prices, trading volume, market capitalization, news, and other relevant information. Crypto data aggregators use algorithms to clean, process, and normalize the data to ensure accuracy and consistency across multiple sources. The information is then presented in…
What Is CoinGecko?
CoinGecko is a cryptocurrency data aggregator and tracking platform. It provides information and insights on the cryptocurrency market, including price, volume, trading activity, developer activity, and community growth. How CoinGecko Works Data Aggregation: CoinGecko collects crypto data from various cryptocurrency exchanges, wallets, and blockchains to create a comprehensive database of cryptocurrency information. Calculation of Metrics: CoinGecko calculates several metrics, such as market capitalization, trading volume, liquidity, and community growth, to provide a comprehensive overview of the cryptocurrency market. Display of…
What Is CoinMarketCap (CMC)?
CoinMarketCap (CMC) is a website that provides information about the cryptocurrency market and tracks the capitalization of various cryptocurrencies. It was founded in 2013 and has become one of the most popular cryptocurrency data providers. CMC aggregates information about the prices, volume, and market capitalization of cryptocurrencies from various exchanges and calculates the average value. Furthermore, the website displays this information in real-time, giving users a comprehensive overview of the cryptocurrency market. CMC tracks over 22,000 cryptocurrencies, including Bitcoin, Ethereum,…
What Are Crypto Pyramid Schemes?
A crypto pyramid scheme is a fraudulent investment scheme where returns are paid to existing investors from funds contributed by new investors. It's called a "pyramid" because it typically has many new entrants at the bottom, with each layer representing fewer investors. Example: John starts a pyramid scheme and invites five friends to invest 1 Bitcoin each. John promises to return 2 Bitcoins to each participant in a month. John needs 10 Bitcoins to fulfill his promise, so he invites…
What Is a SAFE (Simple Agreements for Future Equity) in Crypto?
Simple Agreements for Future Equity (SAFE) is a financing instrument used in the crypto and start-up communities to secure early-stage funding without giving up ownership or control. A SAFE is a contract between a startup and an investor that promises the investor a certain amount of equity in the company in the future in exchange for a direct cash investment. The terms of the SAFE, including the valuation of the company and the equity to be received, are agreed upon…
What Are Crypto Institutional Investors?
Crypto institutional investors are large financial institutions that invest in cryptocurrencies, such as Bitcoin and Ethereum. They play a crucial role in providing stability and growth to the crypto market, helping to bring more mainstream recognition to cryptocurrencies as a legitimate asset class. Crypto institutional investors typically comprise large investment banks, hedge funds, pension funds, and endowments. They bring significant resources and investment expertise to the crypto market, providing the liquidity and capital required for the market to grow and…
What Is Automated Crypto Trading?
Automated Crypto Trading is a type of trading that uses software programs to automate the buying and selling of cryptocurrencies on the market. It uses algorithms to analyze market data and execute trades based on predefined strategies. The software can be programmed to scan the market and make trades based on specific conditions, such as price changes or trends. It also allows for backtesting and optimization of trading strategies. In addition, the trades are executed automatically, reducing the need for…
What is Genesis Mining in Metaverse?
Genesis mining in the metaverse refers to the initial creation and distribution of virtual assets within a virtual world or metaverse, such as virtual real estate or virtual currency. The creators or developers of the metaverse often control this process. It may involve using blockchain technology to ensure the security and integrity of virtual assets. The term "genesis mining" describes the initial creation and distribution of these assets, similar to mining for precious metals or other resources in the physical…