Sourced crypto guides
What Is Liquidation?
Liquidation is the forced closure of a leveraged position by the exchange when price moves against it far enough to exhaust the margin. The higher the leverage, the closer the liquidation level is to your entry.
Why and how does liquidation happen?
Futures positions are opened with margin. As price moves against you, unrealized loss is deducted from margin; once margin falls below the maintenance level the exchange closes the position automatically. Isolated margin risks only that position's margin, cross margin risks the whole account balance.
How is liquidation distance calculated?
Roughly, liquidation distance is 100/leverage percent: at 10x, a ~10% adverse move can liquidate. Fees, funding and maintenance margin narrow that distance a bit further.
- See the liquidation price on the platform before opening.
- High leverage means a narrow distance — even riskier on volatile coins.
- Limit risk to the position using isolated margin.
Why do liquidation clusters move the market?
When many positions in the same zone liquidate in sequence, a "cascade" forms: forced closures push price further in the same direction and trigger new liquidations. Sudden wicks often coincide with liquidation map zones.
- Think in liquidation tiers during sharp sudden moves.
- Zones of crowded leveraged positions can act like magnets.
- Using a stop is cheaper than waiting for liquidation.
Checklist
- Was the liquidation price seen before opening?
- Is the stop placed before the liquidation level?
- Was isolated vs cross margin considered?
- Is leverage compatible with the coin's volatility?
Frequently asked questions
In isolated margin mode usually only the position margin is lost; in cross mode the entire account balance can be at risk.
A correctly placed stop closes the position before price reaches liquidation, preserving the remaining margin.