First of all, we need to understand the reasons for the forced liquidation. There are many reasons for forced liquidation in futures trading, such as violation of trading position restrictions, customers' failure to add trading margin in time, and temporary changes in policies or trading rules.
Specifically, the forced liquidation refers to the behavior of futures companies to close some or all of their customers' positions in order to avoid the expansion of losses, and when the trading margin required by the customer's position contract is insufficient and the market is still developing in an unfavorable direction, without timely adding the corresponding margin or actively reducing the position according to the notice of the futures company. In the standardized futures market, it is most common that customers are forced to close their positions because of insufficient trading margin.
What is the risk of compulsory liquidation?
The compulsory liquidation system refers to the compulsory liquidation of the exchange according to the investor's position and a compulsory risk control measure for its members according to relevant regulations. The risk of forced liquidation refers to the futures brokerage company's daily settlement of traders' profits and losses according to the settlement results provided by the exchange. Therefore, if the margin cannot be replenished within the specified time, futures prices will fluctuate greatly, and traders may face the risk of forced liquidation.
Customers should always pay attention to their financial situation when trading. Because in addition to the total positions of brokers entrusted by customers exceeding a certain limit, there is also forced liquidation caused by insufficient margin, which will also lead to forced liquidation of brokers, thus affecting the forced liquidation of customers. Stock index futures trading adopts the margin system, and a slight change in price will cause changes in investors' margin balance.
Specifically, it refers to the exchange's compulsory hedging of the positions of members and investors in order to close some or all positions under special circumstances. The implementation of the compulsory liquidation system can stop the expansion and spread of risks in time. Sometimes, even if the general direction is right, it may be due to poor fund management and forced liquidation, resulting in great losses and no profit. If the funds are not well managed, it may happen that the funds in the investor's account can't meet the additional margin requirements, and at this time, the investor's position may be forced to close.