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Quick Tips on How to Avoid Crypto Liquidation

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VOC, Voice of Crypto, BTC

As a crypto trader doing margin or futures trading, there is a chance that you may lose money on the trade. To reduce the risk of your portfolio being liquidated, there are some smart crypto trading strategies that you should consider employing. 

For instance, it is not a bad idea to monitor your margins closely to ensure that it does not end up being liquidated. Some crypto traders opt for a lower leverage to reduce their liquidation chance. 

A crypto trader may insure their funds to reduce trading losses in some cases. 

Below are some smart crypto trading strategies to reduce the risks of losing one’s funds to liquidation.  

  • Liquidation Exit Strategy

A smart crypto trader uses liquidation exit strategies to reduce their losses. They can decide to use limit or stop-loss orders to end their positions before the system liquidates them. 

It is important to note that the aforementioned crypto orders like stop-loss orders or limit orders may not always work, as the exchange may fulfill transactions on a first-come, first-serve basis. 

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  • Insurance Fund

This pool of funds protects the trader from a high level of loss. It is meant to handle the contract loss. Let’s say the trader was liquidated, and the price was better than the bankruptcy price. If there is any gain, it is sent to the insurance fund.  

If in this case, the liquidation price is not up to the bankruptcy price, then the insurance loss will have to take care of it. 

  • Reducing leverage

Reducing leverage reduces the risk of liquidation, as those with lower leverages have a lower probability of being liquidated.

Rose Nnamdi is a crypto content writer that loves drafting content on cryptocurrencies and innovative platforms building on blockchain technology.

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