A Must-Read for Margin Trading Beginners: Understand the Risks Behind Leverage Through the Margin Mechanism
In margin trading, investors can borrow funds to amplify their positions, increasing capital efficiency. However, this also means that both potential gains and losses are magnified. The higher the leverage, the smaller the room for market fluctuation — and the more critical risk management becomes.
At the core of margin trading lies the margin system: you contribute a portion of the position value as initial margin, while the platform monitors your position in real time to determine whether you need to add margin or face forced liquidation.
When unrealized losses accumulate to the point that your net equity falls below the required maintenance margin, the system will automatically trigger a forced liquidation at market price. This mechanism is designed to protect users from falling into debt — but for those without a solid risk control strategy, it often results in a total loss of their margin.
Why Does Liquidation Happen?
Your margin is the capital you commit to open a leveraged position. The platform constantly monitors your maintenance margin ratio, and when your net asset value falls below this minimum threshold due to market fluctuations, your position will be automatically liquidated to prevent further losses.
[Example]
-
You open a long BTC position using 1,000 USDT with 10x leverage
-
Total position size: 10,000 USDT
-
If BTC drops by 10%, your position loses 1,000 USDT
-
Your entire initial margin is now lost, triggering liquidation
In other words: With 10x leverage, a 10% move against your position can wipe out your capital.
How to Avoid Liquidation
-
Adjust your position size: Don’t go all-in on a single trade
-
Set stop-loss and take-profit levels: Avoid emotional decision-making
-
Monitor your liquidation price: Know exactly when your position is at risk
-
Enter gradually: Split entries to manage risk more effectively
Leverage doesn’t just amplify returns — it tests your ability to manage risk.
Start your margin trading journey with DigiFinex today. Take advantage of real-time risk control tools and optimized capital efficiency. Every trade deserves a strategy — and a backup plan.
Comments
0 comments
Please sign in to leave a comment.