You opened a leveraged trade. It was going well. Then the market moved against you, your position vanished, and your margin was gone. That’s liquidation. It’s the single most important concept to understand before you trade perpetual futures, and knowing how it works is the difference between keeping your account intact and watching it zero out.
Liquidation in One Paragraph
When you trade with leverage, you put up a fraction of the total position size as collateral (your margin). If the market moves against you far enough that your losses approach your margin, the exchange automatically closes your position. That’s liquidation. It’s a forced exit. Your margin absorbs the loss and your position is gone.
Liquidation isn’t a punishment. It’s actually a protective mechanism. Without it, your losses could exceed your deposit — meaning you’d owe the exchange money. Liquidation caps your downside at what you put in.
How It Works, Step by Step
Let’s walk through a real example.
You have $1,000. You open a 10x long on ETH at $3,000, giving you $10,000 of exposure. Your margin is that $1,000.
ETH drops to $2,900. That’s a 3.3% move. On a $10,000 position, you’re down $333. Still fine — you have $667 of margin left.
ETH drops to $2,800. Now you’re down $667. Your margin is thin.
ETH drops to $2,700. You’re down $1,000 — your full margin. The exchange liquidates your position before losses go any further. Your $1,000 is gone and the position is closed.
Your liquidation price in this scenario was around $2,700. The exchange calculated that number the moment you opened the trade. It was sitting right there on your screen — if you knew where to look.
What Determines Your Liquidation Price
Three things control how far the market has to move before you get liquidated:
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Leverage. Higher leverage = closer liquidation price. At 10x, a 10% move against you wipes your margin. At 5x, it takes a 20% move. At 2x, 50%. The math is straightforward.
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Position size. Bigger positions relative to your margin mean less cushion.
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Margin type. With isolated margin, only the collateral you assigned to that specific trade is at risk. With cross margin, your entire account balance acts as collateral — giving you a further liquidation price but exposing more of your funds.
Every trading platform shows you your liquidation price when you open a position. Look at it. Remember it.
Mark Price vs. Last Price
Here’s something that trips up beginners: liquidation is almost always based on the mark price, not the last traded price.
The last traded price is exactly what it sounds like — the price of the most recent trade on that specific exchange. The mark price is a weighted average pulled from spot prices across multiple exchanges. It’s designed to prevent one exchange’s price from being manipulated to trigger liquidations artificially.
This means you can sometimes see the last traded price blow past your liquidation level for a split second, but if the mark price didn’t reach it, you’re safe. It also means watching the wrong price feed can give you a heart attack for no reason. Always check which price your platform uses for liquidation calculations.
Partial Liquidation vs. Full Liquidation
Not every liquidation wipes your entire position.
Some platforms use partial liquidation — they close just enough of your position to bring your margin ratio back to a safe level. You lose some of your position and some of your margin, but you’re still in the trade with a smaller size.
Other platforms do full liquidation — the entire position is closed the moment your margin threshold is breached.
Partial liquidation is generally more forgiving. It gives your trade a chance to recover after the position is trimmed. Check which method your platform uses before you start trading.
How to Manage Your Liquidation Risk
Liquidation is part of the mechanics. It’s not something to fear — it’s something to manage. Here’s how experienced traders handle it.
Use stop losses. A stop loss closes your trade at a price you choose, before liquidation ever becomes a factor. If your liquidation price is $2,700, set a stop at $2,800 or $2,850. You take a controlled loss instead of a full wipeout. This is the single most important habit you can build.
Choose your leverage intentionally. Lower leverage gives you more room to breathe. A 3x long on BTC can absorb a 30%+ drop before liquidation. A 20x long gets liquidated on a 5% pullback. Match your leverage to the volatility of what you’re trading and your timeframe.
Know your liquidation price before you enter. Every platform shows it. Look at it. Ask yourself: is this level realistic given normal market volatility? If a routine 4% dip would liquidate you, your leverage is probably too high for the trade.
Consider isolated margin for individual trades. Isolated margin limits your risk to what you allocate to that specific position. Even if the trade gets fully liquidated, the rest of your account is untouched.
Add margin if needed. If a trade is moving against you but your thesis hasn’t changed, you can add margin to push your liquidation price further away. This isn’t always the right move — sometimes a loss is a loss — but it’s a tool you should know about.
The Liquidation Cascade: Why Big Moves Get Bigger
You’ve seen those days where BTC drops 5% in an hour and then suddenly plummets another 10% in minutes. Liquidations are usually why.
When a bunch of leveraged traders get liquidated at similar price levels, their forced position closures push the price further in the same direction. That triggers more liquidations at the next level down, which pushes the price further, which triggers more liquidations. It’s a chain reaction — and when it happens to short sellers, it’s called a short squeeze.
This is called a liquidation cascade. It’s why crypto markets sometimes move in ways that seem irrational — the move isn’t driven by people deciding to sell. It’s driven by positions being forcibly closed, one layer at a time.
Understanding this dynamic can actually help you. If you see a big price level where a lot of open interest is concentrated, you know that level might act as a magnet. Prices tend to gravitate toward clusters of liquidation levels because there’s liquidity sitting there.
What Happens to Your Money After Liquidation
Your margin goes to covering your loss. If there’s anything left after fees and the price at which your position was closed, it stays in your account. On most platforms with partial liquidation, you keep whatever margin wasn’t consumed.
With full liquidation, your allocated margin for that position is gone. On isolated margin, that’s just what you assigned. On cross margin, losses come from your total account balance.
You don’t owe the exchange anything beyond your margin. That’s the whole point of the liquidation engine — it closes you out before you go negative.
Trade Perps on Liquid
Liquid gives you clear liquidation price visibility for every position, across crypto and equities, all on-chain.
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Create your account. Sign up with email or connect a wallet. Your assets stay on-chain, in your control.
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Deposit USDC or USDT. No waiting periods. No settlement delays.
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Trade with clarity. See your liquidation price, margin ratio, and unrealized PnL in real time. Go long or short on BTC, ETH, AAPL, TSLA, and more — 24/7.
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Earn points on every trade. Every open and close earns points through Liquid’s points program.