How can I avoid liquidation?
Liquidation is done to ensure that the leverage taken by the trader in the derivatives market doesn’t affect the market in case of a major move in the opposite direction of the trade.
When using leverage, there are a handful of options available to mitigate the chances of being liquidated. One of these options is known as a “stop loss.”
A stop-loss, otherwise known as a “stop order” or “stop-market order” is an advanced order that an investor places on a crypto exchange, instructing the exchange to sell an asset when it reaches a particular price point.
When setting up a stop loss, you will need to input:
Stop price: The price where the stop loss order will execute
Sell price: The price at which you plan to sell a particular crypto asset
Size: How much of a particular asset you plan to sell
If the market price reaches your stop price, the stop order automatically executes and sells the asset at whichever price and amount stated. If the trader feels the market could move quickly against them, they might choose to set the sell price lower than the stop price so it’s more likely to get filled (bought by another trader). The primary purpose of a stop loss is to limit potential losses.
Additionally, traders can also add more margin to avoid liquidation by tapping on the Adjust Lvg. button (image below for reference) through the CoinDCX Pro app. To learn more, click here to watch this quick video tutorial.