Liquidation Explained: How To Avoid margin calls

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High volatility is strictly connected with the whole cryptocurrency market. However, while looking at the historical chart at a long distance, we can notice that the cryptocurrency is usually growing, and even huge 80% drawdowns were always followed by the growth, and over time, previously reached tops now seem to us “a bottom”.

Many people are looking for cryptocurrency long term investments. The same assumptions are confirmed by large corporations investing in cryptocurrencies.

When speaking about the volatility of cryptocurrencies, the market may face a correction or even a large temporary drawdown and enter a “bearish trend”, which leads to large losses in terms of trading.

Let’s take a detailed and transparent look at what liquidation is, how to avoid it, and what to do if after all your loan is liquidated.

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What is liquidation?

In terms of loans, the amount of funds you receive depends on the collateral amount you have deposited. All the cryptocurrency loans are backed by the collateral amount and depend on the collateral price.

Liquidation price or Margin call is one of the defining parameters of every loan. It is made in order to be able to return the funds that were paid for the loan in cases where the market falls below a margin call from the moment the loan was taken, then the collateral is automatically sold.

If it happens the loan will be liquidated at the current asset rate to cover all the expenses.

Information on the liquidation price is calculated and provided to you at the start before you take a loan.

How To Avoid Margin Call?

In order to prevent the liquidation of our clients’ deposits, we have implemented several tools:

  • Our clients will receive multiple notifications if their collaterals would be approaching the margin call

  • In order to decrease your margin call rate our clients should deposit more funds. The marginc call will change accordingly

  • Our clients are able to get their collateral back at any convenient time by simply repaying their loan amount plus accumulated interest. Collateral is never frozen and is always available for refund

Liquidation is not a cause for panic

Liquidation is not a cause for panic
  1. If the liquidation did occur then you will not lose all the funds as in the case of margin trading. You still have your loan funds which you had already received. At the time of the market crash you have the loan amount that is almost equivalent to the market cost of the collateral asset.

  2. If you still believe in the asset, you can buy more of it again. This will provide you nearly the same amount of volume as before.

  3. Historically, the crypto market is usually yearly growing which means every drawdown is followed by an uptrend, and it could be used to increase your wealth accordingly.
The Puell Multiple

    4. As you know, one of the best times to enter the market is by buying the dip. This will help you decrease the losses and compensate for it in the future.

5. If you still think that the market will continue to fall then you can always try out our loans, and use the stablecoins you receive to take a short position based on your strategy.

6. Also, if you are not ready for trading now or would like to wait out a storm in the market for a while then you can always use CoinRabbit Savings and wait for the most convenient moment in the market while earning passively.

The fall in the market is the result of the panic of many holders. It is very important to be confident in your strategy, and also keep in mind the fundamental value of your assets.

Not financial advice. Do your own research and take everything moderately.

Terms of the loans might be changed. Stay tuned.