Compulsory Liquidation
Compulsory liquidation is a procedure carried out by brokers to automatically close positions of clients who do not have sufficient margin to maintain their trades.
This mechanism is designed to protect both the trader and the broker from excessive losses.
When Does Compulsory Liquidation occ
Compulsory liquidation can happen in several situations, such as:
Insufficient Margin: When the investor’s account does not have enough balance to cover a negative position.
Excessive Leverage: If the investor is using high leverage and the market moves against their position.
End of Day (Day Trade): Some brokers automatically close open day trade positions that the investor has not closed.
Broker Rules: Certain brokers have specific compulsory liquidation rules based on their risk models.
Margin Below 100% at OCC: Positions using bonuses may be automatically closed, and a $15 USD fee is charged.
Know the Triggers, Stay Prepared!
Impacts of Compulsory Liquidation?
Financial Losses: Positions may be closed at unfavorable prices.
Loss of Control: The broker, not the trader, decides when to close the position.
Trust Margin: It can affect the trader’s ability to continue operating.
Additional Costs: At OCC, a $15 USD fee applies if liquidation occurs due to bonus usage and a margin below 100%.
“>Protect Your Capital, Maintain Control!
How Does It Work?
Insufficient Margin: When the investor’s account does not have enough balance to cover a negative position.
Excessive Leverage: If the investor is using high leverage and the market moves against their position.
End of Day (Day Trade): Some brokers automatically close open day trade positions that the investor has not closed.
How to Avoid Compulsory Liquidation?
Risk Management: Use Stop Loss and Stop Gain to limit losses and protect profits.
Margin Monitoring: Regularly check your margin levels to avoid surprises.
Avoid Excessive Leverage: Trade with leverage suited to your risk profile.
Capital Reserves: Keep additional funds available to reinforce your margin when necessary.
stay ahead, stay secure
Compulsory liquidation is a necessary measure to maintain market and broker security, but it can cause significant losses for traders. That’s why risk management and understanding your broker’s rules are essential to prevent automatic position closures.
