π₯ Liquidation Liquidation
When an exchange automatically force-closes your leveraged trade because your losses have eaten through the collateral you put up. It sells you out to get its loaned money back before the loss spreads to the exchange.
π The simple version β a forced house sale
Picture buying a house with a small down payment plus a big mortgage. If the home's value drops far enough that the bank fears you can't cover the loan, it can force a sale to get its money back β you lose your down payment and you don't get to choose when. Liquidation works the same way. The exchange is the bank, your margin is the down payment, and when your losing trade threatens the borrowed money, the exchange sells the position out from under you.
π Why it only hits leveraged trades
Liquidation only applies to borrowed-money positions β margin and futures trades, where you use leverage to trade bigger than your own cash. If you buy a coin with money you fully own and simply hold it, the price can sink to the floor but no one can force-close it. There's no loan to protect, so there's nothing to liquidate.
π How the trigger works β margin and the liquidation price
You post collateral (your margin). The exchange sets a maintenance margin β the minimum cushion you must keep. When losses push your margin below that line, forced liquidation fires. Every position also has a liquidation price you can see in advance: the exact price at which it gets closed.
| Leverage | Roughly how far price can move against you before liquidation |
|---|---|
| π 10x | About a 10% adverse move can wipe the position |
| 2οΈβ£0οΈβ£ 20x | About a 5% adverse move can wipe it |
π Those figures are a rough illustration, not a formula. The exact threshold depends on each exchange's maintenance-margin rules and fees. The pattern holds though: higher leverage puts the liquidation price closer to your entry.
π Why one liquidation can trigger many β the cascade
Liquidations create forced orders, and forced orders move the price. When many similar positions hit their liquidation price at once, those orders push the price further the same way, tripping even more liquidations. Long positions get force-sold, which drops the price faster; short positions get force-bought, which spikes the price up. This is why a sharp move can snowball, and why crypto news loves to quote totals like "millions liquidated in 24h."
π¨ Things beginners should know
- πΈ Your own margin goes first β Many beginners think only the borrowed part is at risk. In reality your posted collateral gets consumed first and can be fully lost
- βοΈ Partial or full β Some platforms close only part of the position to restore the cushion; if it keeps going against you, the whole position is closed
- π§Ύ Extra penalty fee β Liquidation usually carries an added fee, partly to nudge you to close manually before it gets that far
- π‘οΈ Lower leverage buys breathing room β Smaller leverage, a stop set in advance, and modest position sizes all push the liquidation price further away
β FAQ
- Can I be liquidated on coins I just bought and hold?
- No. Liquidation only happens on leveraged positions β margin or futures trades that use borrowed money. If you bought a coin with your own cash and simply hold it, the price can fall but no one can force-close it.
- Is a margin call the same as liquidation?
- No. A margin call is a warning that your cushion is getting thin and you still have options, like adding funds or cutting your size. Liquidation is the automatic, no-consent force-close that happens after. In fast crypto markets the gap between the two can be near-instant, so don't count on reacting in time.
- Does higher leverage make liquidation more likely?
- Yes. Higher leverage puts your liquidation price closer to your entry, so a smaller move against you wipes the position. As a rough illustration, a 10x position can be erased by about a 10% adverse move and a 20x position by about 5%.