Liquidation can occur despite having unrealized profits due to several factors in margin trading and risk management. Here’s why:
Margin Level Drops: Liquidation can happen if your margin level (equity to borrowed funds ratio) falls below the platform's maintenance margin requirement. This may occur if the value of your collateral or other positions drops significantly, lowering your margin level.
Cross-Margin Mode: In cross-margin mode, margins are shared across all open positions. Losses in one position can affect the available margin for profitable positions, leading to liquidation despite having unrealized profits elsewhere.
Volatility and Price Swings: In volatile markets, rapid price movements can cause significant fluctuations in your equity, even if you're holding unrealized profits.
Unrealized Profits Don’t Count Toward Margin: Some platforms don’t count unrealized profits toward your available margin until the position is closed, meaning your margin requirement is based solely on the original position size.
Leverage Amplifies Risk: Higher leverage means even minor market fluctuations can drastically impact your margin level, increasing the risk of liquidation.
Margin Debt and Interest Accumulation: If you’re borrowing funds to trade, accumulating interest or fees can reduce your available margin over time.
Stop-Loss Orders Not Triggered: If you haven’t placed a stop-loss order or if the market moves too quickly, your position's value might drop before you can realize those profits, resulting in liquidation before you can exit profitably.
Understanding these factors is crucial for effective risk management in leveraged trading. Stay informed and manage your risks wisely
