Liquidation in crypto: forced close of a leveraged position
Updated 2026-05-22
Liquidation is what happens when a leveraged crypto position runs out of margin. The exchange closes it automatically. You lose the margin posted to that position. There is no margin call and no chance to deposit more. The close is final the moment the price reaches the liquidation level.
How liquidation works
A leveraged crypto position posts a fraction of its notional value as margin. At 10× leverage a $10,000 BTC position posts $1,000 of initial margin. As the price moves against the position, that margin gets eaten. The exchange tracks a second threshold called the maintenance margin, a smaller cushion below initial. The moment equity hits the maintenance margin, the position is liquidated.
On Binance USDⓈ-M, Bybit USDT and OKX swaps the maintenance margin is a tier table: roughly 0.30–0.50% at the smallest notional, climbing as size grows. On Hyperliquid the maintenance rate is flat per coin and does not scale with notional: BTC 1.25% (40× max leverage), ETH 2.00% (25×), SOL and XRP 2.50% (20×), BNB and DOGE 5.00% (10×). The exchange matches the closing trade against another participant on the book, then sends the resulting deficit (if any) to the insurance fund.
Both isolated and cross margin can be liquidated. In isolated margin only the assigned margin is at risk and the rest of the wallet stays untouched. In cross margin the entire balance backs every open position, so a single liquidation can drain the account.
How the liquidation price is calculated
For a long position: Liq = Entry × (1 − 1/Leverage) ÷ (1 − MaintenanceMargin). For a short position: Liq = Entry × (1 + 1/Leverage) ÷ (1 + MaintenanceMargin). The formula assumes one open position with the standard fee schedule.
Example: entry $94,200 on Binance, 10× long, 0.40% maintenance margin. Liquidation price = 94200 × (1 − 0.10) ÷ (1 − 0.004) = $85,121. The same position at 50× would liquidate at roughly $92,634, a 1.7% drop. The MarketTrace liquidation price calculator runs this for every venue.
How to avoid liquidation
Lower leverage is the first lever. A 5× position survives a 19% drawdown on Binance before liquidation; a 50× position survives roughly 1.6%. Volatility on BTC routinely exceeds 1.6% in an hour, so 50× without a stop is closer to gambling than trading.
Set a manual stop-loss above the liquidation level, sized by the asset's volatility rather than by leverage. The position-size calculator translates a fixed risk budget (e.g. 1% of account equity) into the exact contract size that respects the stop distance.
Add margin to an open position to push the liquidation price further from market. This converts unused account balance into a thicker cushion. On most exchanges this is a single-tap operation in the position panel.
Avoid holding large leveraged positions through known volatility events: FOMC, NFP, major exchange announcements, on-chain unlocks. The cross-exchange liquidations tape on MarketTrace records what each of these looks like in real time.
Long versus short liquidations
A long position is liquidated when the price falls through its liquidation level. A short is liquidated when the price rises. On the MarketTrace liquidations tape, longs are red and shorts are green. A wave of red after a price drop is a long cascade; a wave of green after a rally is a short squeeze.
Cascades are the visible footprint of leveraged positions failing one after another. They tend to cluster at round numbers and prior support/resistance because that is where stops and liquidations stack. After the cascade clears, the market often reverses sharply because the forced selling (or buying) is no longer there.
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Frequently asked questions
What happens when you get liquidated?
Your position is force-closed by the exchange at the moment your equity drops to the maintenance margin. You lose the margin posted to that position. On Binance, Bybit and OKX a small fraction of remaining equity also gets routed to the exchange's insurance fund to cover any deficit. The realised loss is final; there is no margin call you can answer with more deposit once the price is at the liquidation level.
How do you avoid being liquidated?
Use less leverage and place a manual stop-loss well clear of the liquidation level. At 5× leverage a long position is liquidated roughly 19% below entry on Binance; at 50× it is roughly 1.6%. The stop should sit at a level that reflects volatility, not the leverage. Adding margin to an open position pushes the liquidation level further from price; reducing position size has the same effect.
Why is liquidation a forced close instead of a margin call?
Crypto perpetuals settle continuously, so the exchange cannot wait for a user to respond. The matching engine closes the position at the liquidation price the moment maintenance margin is breached. This protects the counterparty (the trader on the other side of the position) and the insurance fund. Traditional futures and stocks use a margin call because they trade in sessions; crypto trades 24/7.
What is a long liquidation versus a short liquidation?
A long liquidation closes a long position because price moved down through the liquidation level. A short liquidation closes a short because price moved up. The MarketTrace liquidations tape colours longs red and shorts green so a cluster of one colour signals a one-sided cascade.
Does liquidation price differ across Binance, Bybit, OKX and Hyperliquid?
Yes, because each venue applies a different maintenance margin rate. At the lowest tier Binance uses 0.40%, Bybit 0.50%, OKX 0.30% and Hyperliquid uses coin-specific flat rates that range from 1.25% on BTC up to 5.00% on smaller perps. Same leverage and entry, different liquidation price. The MarketTrace liquidation price calculator applies the correct rate per venue.