Forced closures, also known as forced liquidations, occur in cryptocurrency trading when an exchange automatically closes a trader’s leveraged position. This action is initiated if a trader’s account balance falls below the required maintenance margin, ensuring that losses do not exceed the borrowed funds. It protects both the trader and the lending platform from excessive risk.
Context
Forced closures pose a significant risk in margin and futures trading, particularly in volatile crypto markets. High leverage can amplify losses, leading to rapid liquidation if the market moves unfavorably. These events can also intensify price movements, creating cascade effects as numerous positions are closed abruptly. Traders often monitor liquidation prices to manage their exposure and avoid substantial capital loss.
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