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Borrowing Risks

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Filter:Borrowing Risks

Category – Borrowing Risks

Borrowing risks refer to the financial dangers associated with taking on debt, such as the inability to repay loans or the potential for higher interest rates. In trading, borrowing risks are closely tied to leverage, where traders borrow funds to amplify potential returns. However, excessive borrowing can lead to margin calls or forced liquidations if positions move unfavorably. Traders must carefully assess debt levels, market conditions, and repayment schedules to mitigate these risks and avoid significant financial loss.

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LIQUIDATION

Liquidation is the process of bringing a business to an end and distributing its assets to claimants.

HEDGING

Hedging is an investment to reduce the risk of adverse price movements in an asset.

DEFAULT RISK

Default risk is the risk that a borrower will not be able to make the required payments on their debt.

COLLATERAL

Collateral is an asset that a borrower offers to a lender to secure a loan.

MARGIN CALL

Margin call is a demand by a broker that an investor deposit further cash or securities to cover potential losses.

RISK MANAGEMENT

Risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions.

LIQUIDITY POOL

Liquidity pool is a collection of funds locked in a smart contract, used to facilitate trading by providing liquidity.

YIELD FARMING

Yield farming is the practice of staking or lending crypto assets to generate high returns or rewards in the form of additional cryptocurrency.

ANNUAL PERCENTAGE YIELD (APY)

Annual percentage yield (APY) is the real rate of return earned on an investment, taking into account the effect of compounding interest.

PRIVACY COINS

Privacy coins are cryptocurrencies that offer enhanced privacy features to protect the identity of users.

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