Table of contents

• Preface
• What is a liquidation?
• Why is the position liquidated?
• 1. Excessive leverage, intensifying risks
• 2. Insufficient margin to support fluctuations
• 3. The market fluctuates violently, and prices collapse in a short period of time
• 4. No stop loss is set, trading risks cannot be controlled
• How to avoid a liquidation? The 5 most practical strategies
• 1. Reduce leverage and reduce risk
• 2. Set a stop loss and exit early
• 3. Monitor the margin ratio and replenish positions in a timely manner
• 4. Avoid full position operation and retain liquidity
• 5. Use the position-by-position model to limit the risk of a single position
• How to calculate the price of liquidated positions?
• Leverage liquidation comparison table (open long/open short)
• Why are the liquidation prices slightly different on different exchanges?
• Binance calculation results:
• Bitget calculation results:
• GATE calculation result:
• MEXC calculation results:
• Why are there price differences?
• Position-by-position mode vs. Full-position mode: The risk of liquidation is very different
• Coinglass Investing Data and Clearing Map
• Coinglass Investing Data
• Coinglass Clearing Map
• in conclusion

Preface

Filing positions is the situation that leverage traders are most afraid of.
When the market price fluctuates violently and the margin of the position is insufficient, the exchange will force the position to close, so that the investor's principal will be instantly returned to zero.

This article will use actual cases and data analysis to help you understand the reasons for the liquidation, how to calculate the liquidation price, how to reduce the risk of liquidation, and what to do when a liquidation occurs.

What is a liquidation?

Liquidation refers to the situation where a trader's contract position is insufficient due to market price changes and is forced to close the position by the exchange.
When the loss of leveraged trading positions reaches a certain level, the exchange will actively liquidate to prevent the trader from losing money to exceed the account balance.

Case analysis:

Suppose the investor invests 10,000 USDT, opens 10 times the leverage, and buys a BTC contract worth USDT.
When the BTC price falls by 10%, the position loss will approach the lower limit of margin. If the position is not replenished in time or the stop loss is set, a forced liquidation mechanism will be triggered, resulting in a significant loss of margin and may even return to zero.

The actual liquidation point will be slightly different based on the exchange's maintenance margin ratio, liquidation slippage and liquidation handling fee.

Why is the position liquidated?

1. Excessive leverage, intensifying risks

Leverage can amplify returns, but it can also amplify risks.
During high leverage trading, even if the market only fluctuates slightly, it may lead to forced closing of positions.

For example:

• 5 times leverage: 20% market change may lead to a loss of positions
• 10 times leverage: 10% market change may lead to a loss of positions
• 50 times leverage: 2% market change may lead to a loss of positions

Risk warning: The higher the leverage, the lower the tolerance for price changes. Be careful when using leverage.

2. Insufficient margin to support fluctuations

When opening a position, the exchange will require the trader to deposit the initial margin, but if the price moves in an unfavorable direction and maintains insufficient margin, the exchange will trigger forced closing.

Solution: Regularly monitor the margin ratio and actively replenish positions when the margin is too low to avoid being forced to level.

3. The market fluctuates violently, and prices collapse in a short period of time

The cryptocurrency market is extremely volatile, and extreme price changes (commonly known as pins) may occur in a short period of time, causing high-leverage traders to suffer instantaneous positions.

4. No stop loss is set, trading risks cannot be controlled

Many traders are overconfident and do not set stop loss prices. As a result, the market trend is opposite to the forecast, which eventually leads to a full position explosion.

Solution: Set a reasonable stop loss when opening a position. When the price reaches a certain loss range, it will automatically exit and stop loss to avoid the loss of the position.

How to avoid a liquidation? The 5 most practical strategies

1. Reduce leverage and reduce risk

It is recommended that novices use leverage below 3 times, which can effectively reduce the impact of market volatility on positions.

2. Set a stop loss and exit early

Set a stop loss price when opening a position. If the market changes reach the preset range, automatically stop loss and exit to avoid triggering the explosive mechanism.

3. Monitor the margin ratio and replenish positions in a timely manner

When the margin ratio is lower than the safe range, actively supplement the margin to reduce the risk of position breaching.

4. Avoid full position operation and retain liquidity

Do not use all funds for a single transaction, diversifying positions can reduce capital losses caused by severe market fluctuations.

5. Use the position-by-position model to limit the risk of a single position

Choose the Isolated Margin model. Even if a position is incurred, it will only affect a single position and will not affect other funds in the account.

How to calculate the price of liquidated positions?

The calculation method of the liquidation price is as follows:

Price of liquidation = price of opening ± (margin/number of holdings × leverage multiple)

Case analysis:

Xiao Ming opened a position of BTC, with a price of $100,000, a leverage of 10 times, a position of 1 BTC, and a margin of $10,000 was invested.

• Price of liquidation = 100,000 – (10,000 ÷ 1 × 10) = 90,000 USDT

When the BTC price falls to 90,000, the position will be forced to be closed by the exchange and Xiao Ming’s margin will be reset to zero.

• If the leverage is increased to 20 times, the liquidation price will be increased to 95,000, which is even more risky!

Leverage liquidation comparison table (open long/open short)

illustrate:

• Suppose you use X-fold leverage to open long positions (bullish), and when the underlying asset falls by one X, the position will be over.
• On the contrary, if you open a short position (bearish), as long as the asset rises by one X, the position will also be overturned.
• The actual liquidation price will be slightly higher than this table, because the exchange's handling fee, slippage, security buffer and other conditions must be added.

This table is estimated based on the position-by-position model, single position, and full margin without replenishment, and is suitable for preliminary judgment of risks.

Why are the liquidation prices slightly different on different exchanges?

Although the above calculation provides an estimation basis, the actual liquidation price will be slightly different due to the exchange rules, such as liquidation fee, insurance fund deduction mechanism, and strong smoothing points.

The following is the comparison of the liquidation prices of major exchanges under the same conditions (BTCUSDT, 10x leverage, opening price of 100,000 USDT, position of 1 BTC):

The picture comparison is as follows:

Binance calculation results:

Forced flat price is 90,255.08 USDT

Bitget calculation results:

Forced flat price is 90,361.5 USDT

GATE calculation result:

Forced flat price is 90,286.14 USDT

MEXC calculation results:

Forced flat price is 90,096.0 USDT

Why are there price differences?

Even under the same conditions, the price of liquidated stocks is mainly because each exchange will additionally include handling fees, insurance fund ratios, forced buffer funds, slippage risks and other items based on its own risk control system to ensure the security of funds of the platform and other users:

• The liquidation fee : The platform reserves liquidation fee before the liquidation.
• Differences in liquidation mechanisms : Some platforms adopt more conservative valuations and force them to settle in advance.

These details will make the price of liquidated stocks slightly different on each platform. Therefore, investors must refer to the liquidated stock computer or forced price estimation tool provided by the exchange before opening a position, and properly set risk control parameters.

Position-by-position mode vs. Full-position mode: The risk of liquidation is very different

In leveraged trading, in addition to being related to the leverage multiple and margin amount, the choice of "position model" is also crucial. Currently, mainstream platforms generally provide two position modes: Isolated Margin and Cross Margin. There are obvious differences in the conditions for liquidation and risk tolerance of the two:

Practical advice: Novice recommends starting with the "position-by-position mode", because even if a certain transaction is judged incorrectly, it will not lose margins from other positions in the account, and it is easier to control the risk range.

Coinglass Investing Data and Clearing Map

To better monitor market risks, traders can use the liquidation data and clearing map provided by Coinglass, which helps grasp market dynamics and predict potential liquidation areas.

Coinglass Investing Data

• Total liquidation amount : Check the total liquidation amount in a single day or a specific period of time in the market.
• Long and short positions ratio : Understand the intensity comparison of long and short positions in the market and judge market trends.
• Exchange liquidation ranking : Check the liquidation situation of different exchanges and analyze market leverage risks.

Coinglass Clearing Map

• Identify the liquidation hot zone , find potential market liquidation points, and judge the possible market support and pressure levels.
• Forecast price behavior and analyze future market price trends through leverage position distribution.

in conclusion

A liquidation is not an occasional event, but a foreseeable result caused by insufficient trading strategies and risk control. In the volatile virtual currency market, if rigorous fund management mechanisms and risk response measures are not established, it is very easy to cause major losses in a short period of time.

By reducing the leverage multiple, setting stop loss points, and actively monitoring market data, investors can effectively reduce the chance of liquidation and strengthen position stability and risk tolerance.

In leveraged trading, risk management is always more important than profit. Only by carefully evaluating risks and properly using trading tools can we survive in the market for a long time and make steady profits.

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