What is liquidation? Why positions get liquidated and how to avoid it
When you trade futures with leverage, you only put up part of the position as margin. If price moves against you and the loss nearly eats the margin, the exchange automatically closes your position so you cannot lose more. That forced close is called liquidation.
Higher leverage, closer liquidation price
As a rough estimate, price only needs to move about 1 ÷ leverage against you to wipe out most of your margin. In practice it happens a little earlier, because exchanges require maintenance margin.
- 5x leverage: liquidated after a move of a bit under 20%.
- 10x: a bit under 10%.
- 50x: only about 2%.
"Longs liquidated" vs "shorts liquidated"
- Longs liquidated: traders betting on a rise got caught by a sharp drop.
- Shorts liquidated: traders betting on a fall got caught by a sharp rise.
Heavy long liquidations mean price just dropped suddenly, and vice versa.
Liquidation cascades
When a position is liquidated, the exchange sells (or buys) into the market to close it. That order pushes price further, hits other traders' liquidation prices, and they get closed too. Tens or hundreds of millions of dollars can be wiped out in minutes, which is why crypto sometimes prints very long candles.
How to reduce liquidation risk
- Use low leverage. This is the most effective step.
- Set a stop loss before your liquidation price so you exit on your own terms.
- Use isolated margin per position so one blown trade does not drain the whole account.
- Do not average down without a plan.
- Watch funding and market-wide liquidations to see when the market is too one-sided.
See liquidation data
The Liquidations today page shows large liquidations and hourly totals live. On the whales page you can also see the liquidation prices of large Hyperliquid wallets.