I. Core Risk Management & Liquidation (6 Titles)**

1. 1. I. Core Risk Management & Liquidation

Welcome to cryptofutures.wiki’s guide to core risk management for crypto futures trading. Understanding and implementing robust risk management strategies is *critical* for survival and profitability in this highly volatile market. This section will cover the fundamentals of liquidation, margin types, margin modes, stop-loss orders, and capital preservation. Ignoring these principles can lead to rapid and substantial losses.

1. 1. 1. 1. Understanding Liquidation

Liquidation occurs when your margin balance falls below the maintenance margin level required to hold a position open. This happens when the market moves against your position, and your losses exceed your available margin. When liquidated, your position is automatically closed by the exchange, often at a price *worse* than you anticipated.

As detailed in [Liquidation Risk in Futures Trading](https://cryptofutures.trading/index.php?title=Liquidation_Risk_in_Futures_Trading), liquidation isn’t a penalty, but a protective measure by the exchange to prevent negative balances. However, it’s a scenario you *always* want to avoid. Liquidation prices are calculated based on the Mark Price, which is an average of prices across multiple exchanges, designed to prevent manipulation.

Consider the following: A sudden market crash, as visualized in a Liquidation Heatmap like [Binance-BTC-USDT-Liquidation-Heatmap-24-hour-2024-11-27.png](https://cryptofutures.trading/index.php?title=Dosya%3ABinance-BTC-USDT-Liquidation-Heatmap-24-hour-2024-11-27.png), can trigger a cascade of liquidations, exacerbating the price drop and potentially liquidating even well-positioned traders. These heatmaps show areas where significant liquidation pressure exists.

1. 1. 1. 2. Margin: Your Trading Buffer

Margin is the collateral you provide to open and maintain a leveraged position. It's not *your* money, but rather funds borrowed from the exchange, amplified by your initial investment. Understanding margin types is crucial.

• **Initial Margin:** The amount required to *open* a position.
• **Maintenance Margin:** The minimum amount required to *keep* a position open.
• **Margin Ratio:** (Equity / Initial Margin) * 100%. A falling margin ratio indicates increasing risk of liquidation.

1. 1. 1. 3. Margin Types: Linear vs. Inverse

There are two primary margin types:

• **Linear Contracts:** Settled in stablecoins (e.g., USDT). Profit and loss are directly calculated in the quote currency. This is the more common type for beginners.
• **Inverse Contracts:** Settled in the underlying cryptocurrency (e.g., BTC). Profit and loss are calculated in the underlying asset. This can be useful for hedging existing crypto holdings, but requires understanding the implications of crypto price volatility on your P&L.

1. 1. 1. 4. Margin Modes: Isolated vs. Cross Margin

This is a critical decision impacting your risk exposure.

• **Isolated Margin:** Only the margin allocated to a *specific* trade is at risk. If the trade is liquidated, only that margin is lost. This limits your potential losses, but can also lead to faster liquidation if the market moves sharply against you.
• **Cross Margin:** Your entire account balance is used as margin for *all* open trades. This provides more resistance to liquidation as it draws from your total available funds. However, a single losing trade can potentially liquidate all your positions.

Risk Tool	Usage
Isolated Margin	Limits risk to single trade	Cross Margin	Utilizes entire balance; higher liquidation resistance

1. 1. 1. 5. Stop-Loss Orders: Your First Line of Defense

A stop-loss order automatically closes your position when the price reaches a predetermined level. This is arguably the *most important* risk management tool available.

• **Placement:** Don’t place stop-losses too close to your entry price, as you risk being stopped out by minor market fluctuations ("stop hunting"). Consider volatility and support/resistance levels when setting your stop-loss.
• **Types:** Consider using trailing stop-losses, which adjust the stop-loss price as the market moves in your favor, locking in profits and limiting downside risk.

1. 1. 1. 6. Capital Preservation in Volatile Markets

Crypto markets are renowned for their volatility. Protecting your capital is paramount. As highlighted in [The Importance of Risk Management for Beginners](https://cryptofutures.trading/index.php?title=The_Importance_of_Risk_Management_for_Beginners), consistent profitability relies on staying in the game.

• **Position Sizing:** Never risk more than a small percentage (e.g., 1-2%) of your total capital on a single trade.
• **Diversification:** Don't put all your eggs in one basket. Trade multiple assets to spread your risk.
• **Reduce Leverage:** Higher leverage magnifies both profits *and* losses. Start with lower leverage until you gain experience and a proven strategy.
• **Emotional Control:** Avoid impulsive trading decisions based on fear or greed. Stick to your planned strategy.
• **Regularly Review:** Continuously assess your risk tolerance and adjust your strategies accordingly.

Recommended Futures Trading Platforms

Platform	Futures Features	Register
Binance Futures	Leverage up to 125x, USDⓈ-M contracts	Register now
Bitget Futures	USDT-margined contracts	Open account

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