We have often heard the word liquidation, but do we know it can be forced on an individual or traders in the financial market? First, liquidations are when one converts their assets, which can be crypto tokens or coins, properties to fiat currency. In the crypto market, it can be converted to its equivalent in USDT or other stablecoins and this can be done voluntarily or forced.
When we say liquidation is forced, it involves a process when traders borrow a certain amount of money too long or short to trade and when they refuse to pay back at the given or when the expected collateral drops too low then there will be an automatic conversion of their assets to try cover up to prevent bad debt. This activity usually occurs on leveraged platforms.
How borrowing works on trade is when a trade is performing margin trade for example BTC/USDT and has less than the amount needed he then borrows to complete it giving the leverage they want. However, when the coin is experiencing a bear market that is when the automatic conversion comes in converting the coin into a stablecoin (USDT) to avoid losses or debt.
Voluntarily liquidation on the other hand refers to when a company is having financial troubles or huge debt to pay, then they will decide to liquidate their assets to be able to pay their debt off while traders are simply trading their assets willingly for their personal reasons.
Posted Using InLeo Alpha