Futures Liquidation: How It Works & How to Avoid It
Learn how liquidation works in crypto futures, what triggers forced closure, and proven strategies to protect your margin.
Liquidation is the forced closure of a futures position when your margin balance falls below the maintenance requirement. This mechanism is tightly connected to your leverage level and the margin mode you select.
Understanding liquidation risks is essential for every derivatives trader. In this section, you will find detailed guides on liquidation mechanics, margin requirements, and practical strategies to protect your positions. See also how funding rates can affect your liquidation price.
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Frequently Asked Questions
What is liquidation in crypto futures?▾
Liquidation is the forced closure of your futures position by the exchange when your margin balance falls below the maintenance margin requirement. This happens to prevent your account from going into negative balance.
How can I avoid getting liquidated?▾
Use lower leverage (2x-5x instead of 20x+), set stop-loss orders, monitor your margin ratio, use isolated margin mode to limit risk per trade, and never risk more than 1-2% of your capital on a single position.
What happens to my funds when I get liquidated?▾
When liquidated, the exchange closes your position at the bankruptcy price. You lose the margin allocated to that position. With isolated margin, only that position's margin is lost. With cross margin, your entire account balance may be affected.
What is the difference between liquidation price and bankruptcy price?▾
The liquidation price is where the exchange begins closing your position. The bankruptcy price is where your position margin equals zero. The difference between them goes to the insurance fund to prevent socialized losses.