Is there any handling fee for cryptocurrency exchange liquidation?

When trading contracts on cryptocurrency exchanges, liquidation is a word that scares investors. A liquidation means that the investor has lost all its principal. So, will the exchange still charge a handling fee when the liquidation is liquidated? This is a concern for many investors. This article will give a detailed answer to this.

Important statement: Cryptocurrency contract trading is extremely risky, so please be sure to participate with caution on the basis of fully understanding the relevant knowledge. This article is for information reference only and does not constitute any investment advice.

1. What is a liquidation?

A liquidation refers to the act of forced liquidation of the exchange when the margin balance of the account is lower than the maintenance margin level in contract transactions. Maintenance margin refers to the minimum margin amount required to maintain the current position.

Filing positions usually occurs when the market fluctuates violently. When the price develops in a direction that is unfavorable to investors, resulting in serious account losses and insufficient margin to maintain the position, the exchange will force the position to close the position to avoid investors continuing to lose money and avoid the exchange taking greater risks.

2. Are there any handling fees charged when the stock is liquidated?

There are different regulations on whether a handling fee is charged when a position is liquidated. Generally speaking, there are two situations:

Charge the filing fee:

• Some exchanges will charge a certain liquidation fee when liquidation is lost. This fee is usually used to pay the exchange's risk reserves to deal with the risks brought about by market volatility.

• The charging method and fee rate of liquidation fees vary. Some exchanges will charge them at a certain proportion of the liquidation amount, while some exchanges will charge a fixed handling fee.

• For specific collection standards, please refer to the exchange's official announcement or contract trading rules.

No charge for liquidation fee:

• Other exchanges have made it clear that there will be no handling fees when the position is liquidated. These exchanges usually cover risks through other methods, such as increasing transaction fees, reducing leverage multiples, etc.

3. Constitution of liquidation costs

Even if the exchange does not charge a liquidation fee, some fees will still be incurred during the liquidation, which mainly include:

• Forced closing fee: When a exchange forces closing position, a certain transaction fee needs to be paid. This part of the fee is the same as the normal transaction fee.

• Loss sharing of position penetrating losses: In extreme market conditions, if the exchange's risk reserve is not enough to cover the losses of all users with liquidated positions, the profitable users may share the loss of position penetrating losses.

4. How to avoid overturning positions?

Filing positions is the most terrifying result in contract trading, so investors should take measures to avoid firing positions as much as possible:

1. Control leverage multiple: The higher the leverage multiple, the higher the risk. It is recommended that novices use a lower leverage multiple to gradually accumulate experience.

2. Reasonable control of positions: Do not invest all funds into a single contract, but should diversify investment and control positions.

3. Set stop loss: Set the stop loss point and stop loss in time when the price develops in an unfavorable direction to avoid the loss from expanding.

4. Pay attention to market trends: Pay close attention to market conditions and adjust trading strategies in a timely manner.

5. Improve risk awareness: fully understand the risks of contract transactions and participate with caution.

5. Summary

Whether a cryptocurrency exchange charges a handling fee for a liquidation depends on the exchange's regulations. Some exchanges charge liquidation fees, while others do not. Regardless of whether the liquidation fee is charged or not, liquidation will bring huge losses to investors. Therefore, investors should raise their risk awareness and take measures to avoid overturning positions as much as possible.

Important tip: The information provided in this article is for reference only and does not constitute any investment advice. Before conducting contract trading, be sure to read the exchange's rules carefully and fully understand the relevant risks.