Guide
What Is Liquidation? The Biggest Risk in Leverage Trading
Bottom line: run out of margin, get force-closed
Liquidation is when a leveraged position moves against you so far that your margin can no longer cover the loss, and the exchange force-closes it.
Key points
- The higher the leverage, the smaller the move needed to liquidate
- Liquidation means losing most or all of your margin
- Happens in margin products like perpetual futures
Why it happens
At 10x leverage, a roughly 10% adverse move can wipe out your margin and liquidate you. In a fast market, that can happen in moments.
How to avoid it
- Use low or no leverage
- Keep spare margin
- Use stop-losses to cut losses early
The "zero" risk
Unlike spot, leverage can erase your capital fast. Beginners should get comfortable with spot first.
Not financial advice
This article is for information only and is not investment advice. Crypto assets are volatile and carry risks including hacking. Do your own research and only use money you can afford to lose.
This article is informational only and is not financial, investment, or trading advice. Prices are reference snapshots and may be outdated. Always do your own research.