Trader's Critical Situation

A trader's position being liquidated during sharp volatility is a critical situation that can lead to significant losses or even a complete account blow-up.

Here are key aspects to consider:

1. What is Liquidation?
Liquidation is the forced closure of positions by a broker or exchange when the margin (collateral) falls below the required maintenance level. This happens if:

• The asset's price moves sharply against the trader's position (e.g., price rises during a short, falls during a long).
• Volatility leads to increased margin requirements (e.g., due to changes in volatility within the margin calculation formula).

2. Why is Sharp Volatility Dangerous?

• Price Gaps: During sharp market moves, the price can "jump over" stop-loss levels, leading to order execution at unfavorable prices.
• Widening Spreads: Volatility increases the spread (difference between bid and ask), worsening entry/exit conditions.
• Margin Calls: If the price moves too quickly, a broker may not have time to issue a margin call (request to top up the account), and the position will be liquidated automatically.
• Cascade Liquidations: Mass liquidations by large players can amplify price movements, creating a feedback loop (e.g., in cryptocurrencies or futures markets).

3. How to Protect Yourself from Liquidation?

Risk Management

• Position Sizing: Do not risk more than 1–2% of your capital on a single trade.
• Leverage: Use moderate leverage (e.g., 2x–5x instead of 100x). High leverage increases liquidation risk even with small price movements.
• Stop-Losses: Always set stop-losses, but account for possible slippage during volatility.
• For futures: consider using guaranteed stops (if offered by your broker) or trailing stops.
• For spot markets: stop-losses may not work during gaps—consider options as a hedge.

Psychology

• Emotional Control: Do not try to "revenge trade" after a liquidation — this often leads to even greater losses.
• Daily Limits: Set a limit on maximum losses per day (e.g., 5% of your deposit).

But that's not all.

CushionFi is currently developing a protocol that will automatically inject liquidity at the right moment, protecting your positions from liquidation.

The CushionFi mechanism is designed to step in and top up a position at the crucial moment, preventing a forced liquidation.

CushionFi is now in the alpha testing stage, which is a chance to get in on the ground floor. Early adopters often benefit the most, gaining: exclusive testing access, direct influence on roadmap decisions, and the potential for early rewards as the ecosystem grows.

CushionFi prioritizes transparency, risk management, and user protection. If these values resonate with you, you'll want to join early and help shape the project's future direction.

Website: cushionfi.xyz
X: x.com/CushionFi

P.S. First and foremost I’m obligated to disclose that none of this is investment advice, everything I state in this article are my opinions only and actions that I personally take in hopes of achieving certain results. Investments in cryptocurrencies are risky and results are not guaranteed