Liquidation & leverage
Leverage lets you control a large position with a small deposit. It magnifies gains — and losses. When losses eat your deposit, the position is liquidated. Here's exactly how that works and how to avoid it.
What leverage actually is
Leverage is borrowing. With 10x leverage a $100 deposit (your margin) controls a $1,000 position. A 1% move in your favour earns ~$10 — a 10% return on your margin. But a 1% move against you loses ~$10, and a 10% adverse move wipes out the whole $100.
The higher the leverage, the smaller the price move needed to lose everything. That's the core trade-off: more leverage, less room for error.
Margin and the liquidation price
Your liquidation price is the price at which your losses equal your margin (minus a small maintenance buffer). Reach it and the exchange force-closes the position to stop your balance going negative — that's a liquidation. You lose the margin you posted.
Rough intuition for an isolated position: liquidation sits roughly 1 / leverage away from your entry. So:
- 2x long → liquidation ~50% below entry (lots of room).
- 10x long → liquidation ~10% below entry.
- 50x long → liquidation ~2% below entry (a normal candle can hit it).
For shorts it's the same distance above your entry.
Isolated vs cross margin
- Isolated margin — only the margin assigned to that position is at risk. Liquidation loses that slice and no more. Easier to reason about.
- Cross margin — your whole balance backs the position, so the liquidation price is further away, but a liquidation can take much more of your account.
How to avoid getting wiped out
- Use less leverage. Most blowups come from 25x–100x positions that a routine wiggle liquidates. Lower leverage = more breathing room.
- Size positions small relative to your account so one trade can't end you.
- Set a stop-loss above your liquidation price, so you exit on your terms — not the exchange's.
- Mind funding on positions you hold for a while.
- Watch liquidations around you. Cascades of forced closes can spike volatility right into your liquidation price.