Liquidation refers to the conversion of assets into cash or cash equivalents. The <strong>compulsory conversion </strong>of assets into cash is known as forced liquidation. It's a system for generating market orders to exit leveraged positions. The difference between liquidation and forced liquidation is that the latter <strong>occurs automatically </strong>when certain requirements are met (or not).</p>\n<p>In the crypto world, when an investor doesn’t fulfill the margin requirements for a leveraged position, forced liquidation occurs. Liquidation applies to both – <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-futures/">futures and <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-margin-trading/">margin trading</a>.</strong></p>\n<p>Keep in mind that <strong>liquidation price</strong> is something you should pay attention to when trading with <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-leverage/">leverage. If your leverage is high, the liquidation price is very close to your entry.</p>\n<p>To illustrate, imagine that you begin with a $100 deposit. Let’s say you take a <strong>15x leveraged long position in the BTC/ETH market. </strong>This means that your position is worth $1500 out of which $100 is yours and the remaining is borrowed.</p>\n<p>Now imagine that BTC drops by 10%. What happens? Your position is now worth $1350. That's a bummer, right?</p>\n<p>However, imagine that your position continues to lose money. This means that the borrowed funds will definitely be affected but the lender surely doesn't want to lose money on your account. Because of this, your position will most likely be liquidated to safeguard the capital of the lender. Thus, you'll lose your $100 investment.</p>\n<p>Keep in mind that a <strong>liquidation fee</strong> is usually added to forced liquidation. It differs between platforms platform. However, it encourages traders to close their positions before they get closed automatically. Though a lot of trading platforms allow users to evaluate the liquidation price of a position before it is entered.</p>\n<p>Additionally, note that liquidation might also be utilized when talking about <strong>bankruptcy. </strong>When a person or a company has to convert its assets into cash, it's referred to as liquidation. In this case, cash is perceived as a \"liquid\" form of an asset.</p>","level":"medium","meta_title":"What is Forced Liquidation? 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Foreign Exchange is a <strong>global market for trading currencies</strong> with a <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-trading-volume/">
trading volume</strong></a> of over 3 trillion dollars. It’s a leading financial market in terms of size and liquidity. Forex is completely <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-decentralization/">decentralized./nThe Forex began forming in the early 1970s. It was prompted by the collapse of the Bretton Woods system. In turn, Nixon took the liberty of taking the dollar off the gold standard. This enabled exchange rates to be determined by demand and supply. And thus began the new age of the Forex.</p>\n<p>The exchange rate is determined by participants which include day-to-day traders, brokers, and international banks, among many others. Generally speaking, <strong>major organizations</strong> like commercial banks <strong>hold the most power over the exchange rate</strong>. They interact in one of two ways: one-on-one or through a broker.</p>\n<p>It’s similar to cryptocurrency trading. However, unlike cryptocurrencies, the FX market handles only <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-fiat/">fiat currencies</strong></a>. Participants of the FX market buy and sell in currency pairs. For instance, GBP/USD, EUR/USD, USD/CAD, and USD/JPY, among many other currencies. While cryptocurrency markets are available at any time and any day, the Forex market is closed during the weekends. </p>\n<p><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-speculative-investment/">Speculative trading</strong></a> is an often occurrence on the Forex market. Most of the trading happens on the <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-spot-market/">spot markets</strong></a>. Derivatives rely on real-time volume to successfully operate. Investors take into account <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-leverage/">leverage, <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-technical-analysis-trend-analysis-ta/">technical analysis</strong></a>, and scalping to make financial returns.</p>\n<p>Additionally, some FX investors participate in hedge trading. They can employ futures contracts in addition to forward contracts when hedging.</p>","level":"easy","meta_title":"What is Forex (FX)? Definition & Meaning | Crypto Wiki","meta_description":"Forex (FX) meaning: Forex (FX) - a decentralized currency exchange marketplace.","meta_keywords":null,"language":"en","created_at":"2022-05-18T12:48:00.000000Z","updated_at":"2022-06-07T11:49:23.000000Z","preview_url":"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-forex-fx"},"prevSection":{"id":986,"original_id":null,"author_id":43,"translator_id":null,"title":"What is Flappening?","slug":"what-is-flappening","section":"F","keyword":"Flappening","status":"published","definition":"an event in 2018 when Litecoin overtook Bitcoin Cash in market capitalization.","content":"<p><strong>Flappening</strong> is a term used to describe the event where <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-litecoin-ltc/">Litecoin overtook Bitcoin Cash</strong> in regards to <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-market-capitalization-market-cap-mcap/">market cap</strong></a>. It’s a derivative of <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-flippening/">flippening which refers to a hypothetical future event where <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-ethereum-eth/">Ethereum overtakes <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-bitcoin-btc/">Bitcoin in regard to market cap. However, unlike flippening, flappening has already happened in late 2018. </p>\n<p>The term was first used in a tweet by Charlie Lee explaining that the flappening will happen before the flippening.</p>\n<p>Ever since the flappening, the term has been also used to describe any event where Litecoin surpasses another <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-cryptocurrency/">cryptocurrency.
/nLitecoin community created the Flappening Watch in order to track the current development of flappening.</p>\n<p><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-circulating-supply/">Circulating supply</strong></a> and current market price are the main factors taken into account when determining the market cap of a specific cryptocurrency.</p>","level":"easy","meta_title":"What is Flappening? Definition & Meaning | Crypto Wiki","meta_description":"Flappening meaning: Flappening - an event in 2018 when Litecoin overtook Bitcoin Cash in market capitalization.","meta_keywords":null,"language":"en","created_at":"2022-05-18T11:26:28.000000Z","updated_at":"2022-06-07T11:49:23.000000Z","preview_url":"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-flappening"},"currentChapter":"F","currentSection":"what-is-forced-liquidation","chapterTitle":"F","readingLevel":"medium"},"url":"/crypto/learn/crypto-terms/what-is-forced-liquidation","version":"cdd198d50cbe5c9c21c9329d7c096ffc"}" class="container-fluid d-flex crypto-book p-0"> Crypto Terms: Letter F
What is Forced Liquidation?
Forced Liquidation MEANING:
Forced Liquidation -
involuntary closing of the leveraged position of a trader due to his/her failure to meet the essential margin requirements.
Let's find out Forced Liquidation meaning, definition in crypto,
what is Forced Liquidation,
and all other detailed facts.
Liquidation refers to the conversion of assets into cash or cash equivalents. The compulsory conversion of assets into cash is known as forced liquidation. It's a system for generating market orders to exit leveraged positions. The difference between liquidation and forced liquidation is that the latter occurs automatically when certain requirements are met (or not).
In the crypto world, when an investor doesn’t fulfill the margin requirements for a leveraged position, forced liquidation occurs. Liquidation applies to both – futures and margin trading.
Keep in mind that liquidation price is something you should pay attention to when trading with leverage. If your leverage is high, the liquidation price is very close to your entry.
To illustrate, imagine that you begin with a $100 deposit. Let’s say you take a 15x leveraged long position in the BTC/ETH market. This means that your position is worth $1500 out of which $100 is yours and the remaining is borrowed.
Now imagine that BTC drops by 10%. What happens? Your position is now worth $1350. That's a bummer, right?
However, imagine that your position continues to lose money. This means that the borrowed funds will definitely be affected but the lender surely doesn't want to lose money on your account. Because of this, your position will most likely be liquidated to safeguard the capital of the lender. Thus, you'll lose your $100 investment.
Keep in mind that a liquidation fee is usually added to forced liquidation. It differs between platforms platform. However, it encourages traders to close their positions before they get closed automatically. Though a lot of trading platforms allow users to evaluate the liquidation price of a position before it is entered.
Additionally, note that liquidation might also be utilized when talking about bankruptcy. When a person or a company has to convert its assets into cash, it's referred to as liquidation. In this case, cash is perceived as a "liquid" form of an asset.
