What Is Liquidation in Crypto Trading? How to Avoid It
Liquidation is when the exchange closes your leveraged position on its own because your collateral is no longer enough. You usually lose almost all of the position's collateral.
Why liquidation happens
With futures and margin trading, you hold a position larger than your collateral. The exchange makes sure your loss doesn't exceed that collateral. As soon as the price reaches the liquidation price, the position is closed automatically.
| Leverage | Approximate move to liquidation |
|---|---|
| 2× | about 50% |
| 5× | about 20% |
| 10× | about 10% |
| 50× | about 2% |
These numbers are approximate: the exchange factors in fees and maintenance margin, so the real liquidation price is a bit closer. You can see the exact price in the position details.
How to avoid liquidation
- A stop-loss is mandatory and should sit well before the liquidation price.
- Low leverage. The higher it is, the closer liquidation gets — see leverage.
- Isolated margin limits the loss to a single position.
- Account for volatility — more in our article on volatility.
How futures differ from spot is explained in spot vs. futures.
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- Liquidation is the forced close of a leveraged position.
- The higher the leverage, the closer the liquidation price.
- Set your stop-loss before the liquidation price.
Frequently asked questions
Can I lose more than my deposit?
On major crypto exchanges, usually not: the position is closed before that. But the position's collateral is almost entirely lost in a liquidation.
Where can I see the liquidation price?
In the details of your open position on the exchange. You can also see it before entering, in the order window.
Can liquidation happen on spot?
No. If you bought a coin with your own money and no leverage, the exchange won't close it, even if the price drops sharply.
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