Negative Balance: What It Is and How to Prevent It

1. What Is a Negative Balance?

2. What Causes Negative Balance?

2.1 High Leverage

2.2 No Stop-Loss Set

2.3 Extreme Market Volatility

2.4 Low Liquidity

2.5 Platform Risks

3. Five Core Risk Management Strategies to Reduce Negative Balances

3.1 Leverage Management

• Beginners: keep leverage under 5x. Experienced traders: ideally not above 20x.
• Use the platform's liquidation price calculator to understand your risk range before opening a position.

3.2 Stop-Loss and Take-Profit

• Stop-Loss: Set at a safe distance from the estimated liquidation price. For example, if the liquidation price for a long position is $115,000, set the stop-loss around $117,000 to avoid being prematurely liquidated by short-term volatility.
• Take-Profit (TP): Set targets in advance to ensure that the profit expectation for each trade is much higher than the potential loss. A risk-reward ratio of at least 1:2 is recommended. For example, if the maximum expected loss is $500, the profit target should be at $1,000 or above.
• Trailing Stop: After achieving profits, gradually move the stop-loss upward to lock in gains while still capturing potential trends.

3.3 Margin Allocation

• Maximum Loss per Trade: Ideally, limit it to 1–2% of your total account balance. For example, if your account has 10,000 USDT, the maximum loss per trade should not exceed 200 USDT.
• Margin Usage Ratio: The funds allocated to positions should not exceed 80% of your total capital, keeping sufficient liquidity available to handle market fluctuations.
• Overnight Positions: The longer you hold a position, the higher the uncertainty. When market liquidity is low or before major announcements, it's best to increase margin reserves.
• Understand Multi-Assets Margin: For example, MEXC's newly launched Multi-Assets Margin mechanism helps users reduce the probability of negative balances in extreme markets. On the one hand, it allows multiple assets—BTC, ETH, USDT, USDC, and 14 other major assets—to share a common margin pool. On the other hand, profits and losses between different positions can offset each other automatically, preventing capital fragmentation.

3.4 Risk Exposure Management

• Multi-Asset Allocation: Trade across different types of assets or those with low correlation. For example, spread your positions across major coins (BTC, ETH) and altcoins in different sectors (DeFi, AI, etc.) instead of concentrating everything on a single asset.
• Multi-Directional Hedging: Introduce hedging elements within your positions. For instance, while holding a primarily long position, allocate a small portion of your portfolio to short positions or opposing trades. If the market moves against your main position, profits from hedging can partially offset losses, preventing rapid depletion of account equity.
• Multi-Timeframe Strategy: Split your positions across different trading timeframes, some for short-term swings, others for mid- to long-term trends. Short-term strategies allow timely stop-loss and take-profit execution to control single-trade risk, while mid- to long-term positions can endure short-term fluctuations and capture broader trends. This combination avoids frequent heavy-handed bets while still participating in long-term market opportunities, maintaining balanced overall risk.

3.5 Real-Time Monitoring & Alerts

• Alert Notifications: Set key price alerts on the exchange or TradingView to receive notifications. When market prices approach your stop-loss level, preset warning threshold, or margin deficiency limit, you'll be notified immediately.
• Follow Market News: Major macroeconomic developments and regulatory events are often the triggers for extreme market volatility.

4. Conclusion