In order to trade on a virtual currency exchange, it is important to first know the loss cut rules. This is because if you do not know this, there is a risk that payment will be made without permission in an unexpected place. How does MEXC’s loss cut system work?
What is loss cut? What is the definition?
A stop-loss cut is a mechanism in which held positions are forcibly liquidated. In most cases where this is applied, the result is a large unrealized loss. A margin call will be requested when the margin maintenance rate falls below a certain level. Futures trading is highly dependent on high leverage. The higher the value, the faster it will respond. With futures, even if you use maximum leverage as a method, you need to be careful and limit your lot.
System to prevent the expansion of losses
When you say loss cut, a bad image may be very strong. However, in fact, it can be said that it is a mechanism to protect traders. If there is a loss cut, the loss will be confirmed at settlement, but in principle the minimum amount of funds will be preserved. In other words, it can be said that it is a system to prevent further expansion of losses.
Trader adding funds
There are many traders who add funds to avoid loss cuts. It would be nice if you had the confidence that it would definitely turn positive, but if you put money in blindly, there could be a scenario where it goes even further backwards and you lose even more. Therefore, it can be said that investing money without thinking is very dangerous.
Sometimes it’s not in time
Loss cut is a system to prevent losses exceeding the deposited security deposit, but there are exceptions. If there is a sudden drop or surge due to sudden market fluctuations, the loss cut may not be in time and the loss may exceed the deposit. MEXC uses a zero cut system, so don’t worry as it will be compensated even if it becomes negative.
Cut loss before loss cut
Depending on the situation, the option of cutting losses before the loss is cut in the first place is also very important. This is because it can be said that it is a critical situation to go close to the loss cut. In the first place, if you keep having unrealized losses, you will not be able to calm down mentally at all.
What is margin maintenance rate?
Margin maintenance rate is the effective percentage of the net assets required for trading out of the balance deposited in the account. Regardless of category, this net worth takes into account bonuses and is automatically calculated when placing an order. The stop-loss level is calculated based on the margin maintenance rate, and the forced stop-loss cut is executed. When buying and selling perpetual futures transactions, it is necessary to check the screen. You can check by logging in. This mechanism is the same for binance and bybit.
Zero cut system
Currently, MEXC uses a system called the zero cut system. If rapid market fluctuations occur in the latest market, the implementation and operation of the stop-loss system may be delayed regardless of the quantity, and some accounts may become negative. However, it is safe because these exchanges will compensate for the negative amount. The basic condition is that the user has no risk of incurring debt, so using it will have a great impact.
MEXC loss cut system
In MEXC, the loss is cut when the maintenance margin falls below the compulsory liquidation price. Maintenance margin refers to the margin required to maintain a position. The forced liquidation price is calculated differently depending on the type of transaction. The forced liquidation price is determined by how the margin is used and the type of trade.
separation margin
This is a method to manage account balance and position margin separately. Separation margin has the advantage that you can set your own margin. However, since the margin is less, the timing of the loss cut will be faster.
cross margin
This pattern uses the full amount of the account balance as margin for the position. In this case, the margin will be the balance, so the loss cut will be far. However, if a loss cut occurs, you will lose all the principal.
USDT-M Liquidation Price
Separation Margin: Maintenance Margin = Position Margin + Fluctuation PnL
Cross Margin: The entire balance is maintenance margin
Forced Liquidation Price of Long Position = (Maintenance Margin – Position Margin + Average Price x Amount x Face Value) ÷ (Amount x Face Value)
Forced Liquidation Price of Short Position = (Average Price x Amount x Face Value – Maintenance Margin + Position Margin) / (Amount x Face Value)
COIN-M liquidation price
Separation Margin: Maintenance Margin = Position Margin + Fluctuation PnL
Cross Margin: The entire balance is maintenance margin
Forced Liquidation Price of Long Position = (Average Price x Face Value) ÷ (Amount x Face Value + Average Price (Position Margin – Maintenance Margin))
Forced Liquidation Price of Short Position = Average Price x Amount x Face Value ÷ Average Price x (Maintenance Margin – Position Margin) + Amount x Face Value
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