Introduction
As crypto trading grows more popular—especially leveraged trading on platforms like Binance, Bybit, and BitMEX—liquidation is a term traders must understand clearly. In simple terms, liquidation happens when your trading position is automatically closed by the exchange to prevent further losses.
In this article, we’ll explain:
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What liquidation in crypto is
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Why it happens
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How to calculate the liquidation price
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How to avoid getting liquidated
What Is Liquidation in Crypto?
Liquidation in crypto trading occurs when a trader’s margin balance falls below the required maintenance level, usually due to heavy losses in a leveraged position (e.g., 10x, 20x leverage).
 Quick Example:
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You open a long position on Bitcoin at $30,000 with 10x leverage.
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If BTC drops significantly, your margin (the money you put up) can no longer support the position.
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At a certain price level, the exchange liquidates (closes) your position to prevent more losses.
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You lose your margin deposit.
Types of Liquidation
| Type | Description |
|---|---|
| Partial Liquidation | Only a portion of the position is closed to reduce risk. |
| Full Liquidation | The entire position is closed, and your margin is lost. |
How to Calculate Liquidation Price
Formula for Long Positions:
Liquidation Price=Entry Price×(1−1Leverage)\text{Liquidation Price} = \text{Entry Price} \times \left(1 – \frac{1}{\text{Leverage}}\right)
Formula for Short Positions:
Liquidation Price=Entry Price×(1+1Leverage)\text{Liquidation Price} = \text{Entry Price} \times \left(1 + \frac{1}{\text{Leverage}}\right)
These formulas are simplified and do not account for fees, funding rates, or risk buffers used by each exchange.
Example for a Long Trade:
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Entry Price: $20,000
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Leverage: 10x
Liquidation Price=20000×(1−110)=20000×0.9=$18,000\text{Liquidation Price} = 20000 \times \left(1 – \frac{1}{10}\right) = 20000 \times 0.9 = \text{\$18,000}
You will be liquidated if Bitcoin falls to $18,000.
Example for a Short Trade:
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Entry Price: $25,000
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Leverage: 5x
Liquidation Price=25000×(1+15)=25000×1.2=$30,000\text{Liquidation Price} = 25000 \times \left(1 + \frac{1}{5}\right) = 25000 \times 1.2 = \text{\$30,000}
You will be liquidated if Bitcoin rises to $30,000.
Factors That Affect Liquidation Price
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Leverage: Higher leverage means tighter liquidation ranges.
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Position size: Larger trades with small margins liquidate faster.
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Collateral value: If your margin loses value (e.g., in altcoins), liquidation comes sooner.
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Maintenance margin: Each exchange sets its own minimum maintenance margin (e.g., 0.5% to 1%).
How to Avoid Liquidation
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Use lower leverage – Avoid 20x or 50x unless you’re very experienced.
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Set stop-loss orders – Protect your capital from sharp market drops.
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Add margin (maintenance) – Boost your collateral if the price moves against you.
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Diversify trades – Don’t put all your capital into one high-risk trade.
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Understand exchange rules – Binance, Bybit, and others use different liquidation engines.
🧠Liquidation vs. Stop Loss: What’s the Difference?
| Feature | Liquidation | Stop Loss |
|---|---|---|
| Triggered by | Exchange, when margin is too low | You (manually or automatically) |
| Outcome | Forced closure, full margin loss | Controlled closure, limited loss |
| Purpose | Protects the exchange | Protects the trader |
Tools to Calculate Liquidation
You don’t need to calculate it manually every time. Try online crypto liquidation calculators, such as: