I wanted to bring this up in a thread that got locked: Do you focus on using SL and TP?
Seems like the thread was closed because the replies since December 7th are just repeating what others have already said.
Here’s why I’m posting: I noticed something that needs clarification. So, the example given is accurate but I don’t agree with the first part of the quote. It talks about someone using $2000 to trade at 0.5 to 1x leverage while someone else uses $200 with 10 to 20x leverage. I didn’t say in my earlier post that I’m using leverage. If both the person with $200 and the one with $2000 use the same leverage, their liquidation prices would end up being identical.
The liquidation is definitely same. With my years of experiencing the market ups and downs , I've come to notice that capital actually moves the market. Trading with a small capital most times as a new trader is what makes our journey less interesting and more of the losses. With a big account, the market will come to your tp zone even if it does some draw back or manipulation, so long your entry and analysis were correct, then your funds would be able to hold the market till it returns back to your expected directions.
But then a small account is what the market makers actually use to moves a trade. They manipulate these trades to the opposite direction looking for smaller accounts who would not be able to hold the trades for long and take them out. And when this is done, they serve as liquidity and drives the market to its original direction. So the liquidation is going to be the same. What matters is how much you are going to be able to hold the market with..
Actually somw market maker really loves to liquidate those retail traders. If you noticed there are some wicks or gaps on some trade that let them liquidate smaller accounts. Stop loss is good but sometimes this kind of market trade are very deep to pass up.
Most whales arent affected since they got funds that support the liquidation price while smaller users werent and can easily be taken out.
Liquidation is executed with a liquidation formula from a centralized exchange. A trader who wants to use Leverages for his trading position, must search for that information, the liquidation formula, before open a Leveraged trading position.
This formula can help to calculate your liquidated price, with a chosen leverage for your trading position.
Liquidation is based on leverage used and price change, it isn't related to your trading capital. Especially in Isolated margin trading, but it can be different in Cross-Margin trading because with this margin trading type, if you are rich, have big capital and did not use all of it for your leveraged trading position, you can deposit more capital into your Cross-Margin account.
Difference, if exists, only is available with Cross-margin type.
First I will commend you for bringing topics like this up because the trading discussion board seems like a spam board this days. So discussions like this are actually good to bring up.
Now to the liquidation part I think both of you are actually saying same thing with different narrative, if the one with a $2000 uses 1x and the person using $200 with a 10x will both have a position size of $2000 and as such it will definitely have the same liquidation price point. But just like what strange said should the leverage be the same that is 10x on both $2000 and $200 capital the liquidation price will definitely be different because there is variance in the position size. The $2000 capital will have a $20,000 position opened and the $200 will be $2000 position which will make the position price change. But this again is actually dependent on the total capital on the trading account. Liquidation is actually telling you when all your capital in the account will be used up when in loss. So capital combine with leverage actually determines it
He quoted me and he is just wrong. Go and read it again. I understood 100% of what he is talking about but there is no need for that post because nobody talks about leverage. We did not mean the same thing at all as I did not refer to leverage.
It's not the case. It depends on whether you are using cross or isolated as well. So you would get the total trading with the amount you are risking. So if you have a smaller capital but you ration your trades into percentages, it would be technically the same in some sense. Let's say you are risking 1% only or 3%. You would get it the same if you still use the same percentages on a different capital.
As long as the leverage stays the same, it will remain the same. However, the profit margin will definitely be different because you are risking more with the larger capital.
With Isolated margin, you can not do anything. With Cross margin, you can do something by deposit more money to your collateral but it increases risk of losing more money if you fail to rescue your trading position.
Deposit more money sometimes can end with bigger liquidation at the end, it's not good.
If there is no further action like deposit more money to your account, your capital is big or small is not matter. Liquidation will be the same if you use same leverages.
What is Isolated Margin and Cross Margin in Crypto Trading?
I don't think this way is valid for what OP wanted to say. Like OP is using an example of $200 and $2000, when I read it, I automatically considered it Isolated, let's not make ourselves complicated
And OP is correct about the example of it being the same as the liquidation price.
In short, the only difference is the profit and risk difference.
On my experienced in actual trade, the speed of liquidation depends on the amount of leverage and amount of money you trade on an exchange site platform. Just like he said if 10$ and the leverage is 20x then the liquidation will happen really fast if the position is opposite to what the trader has placed.
But if the amount is 2000$ I would somewhat agree with the leverage should be only 0.5x to 1x so that the liquidation will not be fast if ever you have not placed an SL. But if at 200$ and 10x to 20x leverage you will still be fast to liquidate there for sure if the trend that happened is opposite to the position you made.
When you trade with high leverage, you have capital behind that. For example, if my capital is $1000, XRP worth $1 and I open a short position with $20 and 10x leverage, what do you think, when will I be liquidated? If XRP becomes $2? No, if XRP becomes $2 and my capital is in futures investment, my loss will be $200 but that doesn't mean that my position will be liquidated. My position will only be liquidated if the XRP reaches $5 because that is the moment when my negative balance reaches to $1000. If you open a position without a backup balance in the futures account, then your position will be liquidated as soon as the price increases by more than 10%.
The only variable is the leverage and the size of this leverage. Aside from that, it's a level playing ground for both traders small sized and a small-mid sized traders as mentioned in the example.
The only benefit a large-sized trader will have against a small sized one even though they're on same leverage is that the one with the larger account can take more and can even pour more into the margin to keep the trade open for as long as possible because their capital affords them to do so. For small sized account, you get liquidated because you can't add to margin when the price goes against them, enough to reach their liquidation price level.
yeah it seems people in general have the idea that high leverage = bad and high leverage = instant margin call.
truth is, it just depends on margin size and leverage and what kind of account we're trading whether it's cross or isolated, i can be using 200x leverage and if i only use $1 margin, I can tolerate thousand percent of PnL easily
but people are so scared seeing big negative pnl number on their position so I guess it's more of psychological thing where people get the illusion of big loss with high leverage.
High leverage is always bad, because risk of losing yur capital is bigger, than with low leverage. Unfortunately even low leverage isn't safe, there is risk of liquidation with low leverage position too.
If you use 200x leverage with $1 margin, you can lose your $1. Repeat your 200x leverage with $1 for 1000 times, you will lose about $1,000, is it small loss. Trading is to get profit, with whatever trading types from Spot, Leverage to Futures. If your trading position ends with loss, it's bad, if it ends with liquidation, it's worst ending.
Rather than trying with high leverage, 200x leverage is a very high one, you can try with Spot trading, or just be an investor, buy and hold your bitcoin, wait for several years to have profit.
The liquidation risk is always same for any amount. the token or coin price will drop by percentage so if you use big amount for trading then your loss amount will higher and if you use small amount for trading then your loss amount will lower. but in the future trading if you use high leverage in small amount for quick handsome profit then here your liquidation risk will higher but if you use same leverage then liquidation risk will definitely same always
Yeah. They have their own formula for it but we must also have our own, and before we deal with something else, it is important to have adequate knowledge about it first, so that we will know how to deal with them and we can mostly gain an advantage than the disadvantage. Leverage must have a multiplier and just like in gambling, we will only need to multiply it with the amount that we are willing to risk, to know if how much we can earn if in case we are successful with our trades. It is only just a simple mathematics though but it is just that higher returns can also equate to higher risk or the chance for us to get successful on them is only low.
Also, the trading process might cause us a stress, most especially once we lose. We can't control the price change but there are factors that we can use to foresee it. Still, it is better to be on the safer side than sorry. This is why we only need to allocate smaller amount or amounts that we can afford to lose and then choose only leverage that are manageable or not really high for us.
That's great and a humble move for a rich peep but this is why most rich people only got richer because of how frugal they are with their money.
When it comes to liquidation in trading, the only thing that defines it is your leverage, how large is your leverage?
Do we all know that if we trade without leverage it's very difficult to get liquidated because the liquidation price will be too far off for liquidation to even take place if you truly knows the craft?
Secondly, just as Bitcoin is today, if you use a hundred dollars to trade Bitcoin without leveraging, and you long the market, Bitcoin has to go as low as 40k dollar if am not mistaken before you get liquidated, which is very much unlikely according to today's market reality, so it doesn't matter how much you are trading with, what is the most important thing when it comes to liquidation is your leverage.
Just like you said - I agree. Risk will always be there, but it can be tolerated by lower leverage or just going into the spot.
Nothing also stops you from doing both and benefitting from it.