What is liquidation in crypto trading?
Beginners treat liquidation as bad luck — a violent candle out of nowhere. It is closer to an appointment: the moment you pick a leverage number you have fixed how far price may travel against you, and you can calculate that distance before you click buy.
What is liquidation and who decides the price?
Open a 10× long and you post 10% of the position value as margin; the exchange effectively funds the rest. That margin is the buffer absorbing losses. Once losses eat it down to the maintenance margin — the minimum collateral the exchange tolerates, commonly around 0.5% of position value on major pairs — the risk engine closes you at market. Nobody phones you first. That is what separates a liquidation from the margin call of older markets.
How far away is your liquidation price?
Want the arithmetic rather than the definition? How to calculate your liquidation price runs the exchange’s own five-step formula with real bracket rates.
Close enough for practical work, the distance is 1 ÷ leverage, minus the maintenance margin rate. At a maintenance rate of 0.5%, on an isolated-margin position, ignoring fees:
| Leverage | Price move that liquidates you | On a $10,000 long, margin of |
|---|---|---|
| 3× | −32.8% | $3,333 |
| 5× | −19.5% | $2,000 |
| 10× | −9.5% | $1,000 |
| 20× | −4.5% | $500 |
| 50× | −1.5% | $200 |
| 100× | −0.5% | $100 |
At 100× an ordinary half-percent wobble — which Bitcoin produces several times an hour — is fatal. Check a specific position in the liquidation price calculator.
How much leverage is safe for the stop you plan to use?
Your stop is only meaningful if it fires comfortably before the liquidation price. A workable buffer is at least 3×, so ordinary noise cannot reach the liquidation level while you wait for the stop. Turn that around and the stop distance sets your leverage ceiling: max leverage = 1 ÷ (3 × stop distance + 0.5%).
| Your stop sits | Needs liquidation at least | So your leverage ceiling is |
|---|---|---|
| 2% away | 6.0% away | 15× |
| 3% away | 9.0% away | 10× |
| 4% away | 12.0% away | 8× |
| 5% away | 15.0% away | 6× |
| 8% away | 24.0% away | 4× |
The table never asks how confident you feel. It asks one thing — how far away is your stop — and hands you a number. The stop should choose the leverage, not the other way round. Size the position itself from risk with the position size calculator.
How is liquidation different from a stop-loss?
A stop-loss is a planned cost: you decide where the idea is wrong and keep the rest of the account. A liquidation is an accident you funded — the price comes from collateral arithmetic, not from anything you believe, and it takes the whole margin. Being stopped out is part of a profession; being liquidated means the position was too large for the distance you gave it.
When does the 3× buffer fail to protect you?
Two cases, worth knowing before you lean on the table. Cross margin breaks the fixed distance: your whole balance backs the position, so the liquidation price moves as other positions gain or lose — see isolated vs cross margin. And in a liquidation cascade a stop that triggers on time can still fill far below its price, because slippage widens exactly when everyone needs the exit at once. The buffer handles ordinary noise. It does not make a stop a guarantee.
FAQ
Can I lose more than my margin? On major exchanges, isolated-margin positions cannot go below zero — the loss stops at the margin you posted and the insurance fund absorbs any overshoot. With cross margin your whole balance backs the position and can be consumed.
How do I avoid liquidation? Lower leverage, size from risk rather than from available margin, and place a stop-loss well inside the liquidation distance. The ceiling table above turns that into one number.
Is a liquidation price fixed once I open the position? On isolated margin it is fixed unless you add margin, which pushes it further away. On cross margin it moves with your whole balance.
See where your liquidation price actually sits
The number that matters is the gap between your stop and the exchange’s liquidation level. It only exists on a live ticket, and it differs by venue.
Compare the three exchanges we use →
Or see liquidations that happen in public →
On a centralised exchange you only ever see your own liquidation. On a perpetual DEX the whole book is on-chain, so you can watch where other people’s liquidation levels are stacked — the clearest way to understand why cascades happen. The bill differs too: a centralised venue can charge a clearance fee on the liquidation itself, which DEX vs CEX prices out on a $10,000 position. The trade-off is self-custody: no support desk, no password reset.
Those pages carry referral links and say so up front — including what each venue does badly.
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