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What is liquidation in crypto trading?

Liquidation is the forced closing of a leveraged position by the exchange once losses have eaten through the trader's margin. Unlike a stop-loss, which you place at a price you chose, liquidation happens at a price the math chose — and usually with your entire margin gone.

How it works

When you open a 10x leveraged long, you post 10% of the position's value as margin and borrow the rest. If price falls roughly 10% (slightly less, after fees), your margin no longer covers the loss — so the exchange's risk engine closes the position at market, keeping what remains of your collateral. Higher leverage narrows that distance: at 50x, a 2% move against you is fatal.

Why it matters more in crypto

Crypto exchanges offer far higher leverage than regulated stock brokers, and crypto's routine volatility crosses those narrow distances constantly. Worse, thousands of similar positions share similar liquidation prices, so a dip that touches one cluster can trigger a chain reaction of forced selling. The professional's rule: choose leverage so your stop-loss always fires long before the liquidation price — being stopped out is a planned cost, being liquidated is an accident you funded.

FAQ

Can I lose more than my margin? On major crypto exchanges, isolated-margin positions cannot go below zero — the loss stops at your posted margin (the insurance fund absorbs overshoot). With cross margin, your whole account balance backs the position and can be consumed.

How do I avoid liquidation? Lower leverage, position sizing from risk (not from margin), and a stop-loss placed well inside the liquidation distance. The position size calculator does this math.

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