What is liquidation level’
Liquidation level the specified level, which automatically starts the liquidation process will be set in motion. This often comes into play in situations related to the currency market, also known as the Forex market.
In the Forex market, it represents a specific value of a trader’s account below which the liquidation of the trader’s positions is triggered and executed at the best available rate at the time. The liquidation level is expressed as a percentage of the value of assets. If the position of Forex trader to go against them, their account will eventually reach the level of liquidation, unless the trader makes additional margin to Fund their accounts.
Through the liquidation level’
The liquidation level can be viewed as a kind of failsafe, a security feature that helps protect the traders and dealers who represent them, incurring significant losses beyond the point at which they can tolerate.
The level of liquidation as a protective means
Since the ultimate goal in trading in the Forex market, as in trading, which includes shares to realize a net profit. In simple terms, this is done by attaching to the main strategy of buying low and selling high. It is a process that relies heavily on good timing and skilled strategy and a bit of luck. There is of course some element of risk, although there are steps traders can take to try to mitigate or minimize these risks.
Forex trading makes heavy use of leverage. The initial investment, known as margin, is required to gain access to the currency market. When changing prices, margins, forcing the investor to invest additional money. A price adjustment in a short period of time means a quick change of the margin, which represents the possibility of significant losses.
When the dealer performing such activities on behalf of the trader, the dealer assumes the risk of these potential losses. Therefore, the Forex dealer holding the account, the trader assumes the risk that the trader’s trades will lose money and that the trader will not be able to repay the borrowed money used to make transactions on Forex. As such, the liquidation of a certain level, which the trader undertakes when opening their accounts, fixes the minimum margin expressed as a percentage, the Forex dealer can wait until the automatic liquidation of the trader’s assets to avoid a possible default. It serves as a protective measure that gives the trader the confidence that they have a limited Vulnerability to loss.