Do I lose all my money when liquidated?

Not necessarily. You lose the margin allocated to that position. With isolated margin, losses are limited to the position margin. With cross margin, your entire account balance is at risk.

Can I be liquidated with low leverage?

Yes, but it requires a much larger price movement. At 2x leverage, the price needs to move roughly 50% against you. At 100x, just 1% can trigger liquidation.

What is the liquidation fee?

Most exchanges charge 0.5% to 1.5% of the position value as a liquidation fee. This is deducted from your remaining collateral.

Liquidation — Margin Trading Definition

Liquidation is the automatic closure of a trader's leveraged position by the exchange or broker when the account equity falls below the required maintenance margin. It is the final step after a margin call and serves to protect both the trader and the exchange from further losses.

How Liquidation Works

When you trade with leverage, you borrow funds from the exchange to amplify your position. The exchange requires you to maintain a minimum amount of collateral (maintenance margin). If your losses eat into this collateral beyond the maintenance level, the exchange forcefully closes your position — this is liquidation.

Liquidation Process:

1. Price moves against your position significantly 2. Margin ratio drops below maintenance margin requirement 3. Exchange's liquidation engine activates automatically 4. Position is closed at the current market price 5. Remaining collateral (if any) is returned minus liquidation fees

Calculating Liquidation Price

For a long position: Liquidation Price = Entry Price × (1 - 1/Leverage + Maintenance Margin Rate)

For a short position: Liquidation Price = Entry Price × (1 + 1/Leverage - Maintenance Margin Rate)

Example:

Entry price: $50,000 (BTC)
Leverage: 10x
Maintenance margin: 0.5%
Long liquidation price ≈ $45,250 (roughly 9.5% below entry)

Partial vs Full Liquidation

Some exchanges use partial liquidation to reduce your position size instead of closing it entirely. This can help you maintain a portion of your trade:

Binance: Uses multi-tier liquidation, reducing position incrementally
Bybit: Partial liquidation engine reduces position to lower risk
Kraken: Full liquidation at maintenance margin level

Liquidation Fees

Most exchanges charge a liquidation fee, typically 0.5% to 1.5% of the position value. This fee is deducted from your remaining collateral.

How to Avoid Liquidation

Use lower leverage — 3-5x instead of 50-100x
Set stop-loss orders well above your liquidation price
Add margin to your position when it moves against you
Use isolated margin to limit losses to that position only
Monitor your margin ratio and act before it's too late

Insurance Funds and ADL

Exchanges maintain insurance funds to cover losses when liquidated traders' positions can't be closed at a favorable price. If the insurance fund is depleted, Auto-Deleveraging (ADL) may occur, where profitable traders' positions are automatically reduced.

Liquidation