Before talking about this issue, we must first understand what is going on with liquidation.
The biggest risk of margin trading is liquidation. When the net value divided by the used prepayment is less than a certain percentage, the position will be liquidated. The platform will liquidate the order of the account, and generally liquidate the largest lot first. After the maximum number of lots is closed, the margin will be released, and the ratio will increase, and the liquidation condition will not be met.
If the market continues to be unfavorable to your order, the remaining orders will continue to be liquidated if they meet the conditions again, until all orders are liquidated. So what is the liquidation ratio stipulated by each platform? 100%, 30%, 50%. Our suggestion is to set it as 100% if you want to use mental arithmetic. The net value is the current account balance plus the profit and loss. For example, the account balance is 2000. We have placed five orders. The position loss is 1000. The loss of 2000 minus 1000 is the net worth. If the account has a profit of 1000, then it is 2000 plus 1000.
The used prepayment is the amount of prepayment occupied by the order currently opened. The algorithm of the used prepayment is the transaction target divided by the leverage. How to calculate the transaction target? We use the euro as the subject of the transaction. The euro is 100,000. Assuming that the leverage of the account is 100 times, 100,000 divided by 100 is equal to the advance payment of one lot.
Assuming that the balance is 2000, the net value divided by the used advance payment 2000 divided by 1000 equals 200%. When it is less than 100%, the net value becomes 1000. When a lot drops by 1000 points, the position will be liquidated.
Let’s take the example just now. Open a position with a balance of 2000 and lose 1000 points in one lot. Then the position is liquidated, and the leverage is 500 times. Under what circumstances will the position be liquidated? When you first opened a position, you took up 200 margin. The ratio of 2000 divided by 200 margin is 1000%. When you lose 1800 points, your position will be liquidated. That is to say, when the net value falls in line with the used advance payment, the position will be liquidated. From the above example, in fact, the greater the leverage, the better, because the greater the leverage, the lower the used prepayment of the divisor, the greater the final result will be, and the farther it is from being less than the liquidation condition. But the risk of the account will be higher.