JustChartsWhat Is Liquidation in Crypto Futures, and How Do You Avoid It?
Liquidation happens when a leveraged futures position loses so much that your remaining margin falls to the exchange’s maintenance level, and the exchange force-closes it. At 10x leverage, a price move of roughly 10% against you can liquidate the position. Using lower leverage, isolated margin and a stop-loss well before the liquidation price are the main ways to avoid it.
Why do liquidations happen?
When you open a leveraged position on a crypto exchange, you post initial margin. The exchange also sets a maintenance margin — the minimum needed to keep the position open. If losses eat your margin down to that level, the exchange closes the position to stop your balance going negative. You lose the margin on that position (or most of it).
How is the liquidation price calculated?
For an isolated-margin position, a simplified estimate is:
Long: liquidation ≈ entry × (1 − 1/leverage + maintenance margin rate)
Short: liquidation ≈ entry × (1 + 1/leverage − maintenance margin rate)
Example: a BTC long at $100,000 with 10x leverage and a 0.5% maintenance margin rate is liquidated around $100,000 × (1 − 0.10 + 0.005) = about $90,500 — a fall of roughly 9.5%. At 50x, the same formula puts liquidation only about 1.5% away.
Real exchanges also include fees, funding payments and tiered maintenance rates for large positions, so always use your exchange’s own liquidation price.
Isolated vs cross margin
- Isolated margin: only the margin assigned to that position is at risk. If it’s liquidated, the rest of your balance is untouched.
- Cross margin: your whole futures balance supports every position. Liquidation is further away, but if it happens you can lose much more.
How to avoid liquidation
- Use lower leverage. The lower the leverage, the further away the liquidation price.
- Set a stop-loss well before liquidation. Choose an exit based on your trade idea, and make sure it triggers long before the exchange would liquidate you.
- Size positions by risk. Decide how much you are willing to lose (for example 1% of your account) and size the position so the stop costs that amount.
- Watch funding rates. Extreme funding shows crowded positioning — the kind that ends in cascades of liquidations.
- Be careful around big news and weekends, when liquidity is thin and wicks are sharp.
What is a liquidation cascade?
When price hits a cluster of liquidation levels, forced selling (or buying) pushes price further, triggering the next cluster. These cascades cause the long wicks crypto is famous for. Watching where liquidations are happening — as on the JustCharts liquidations page — shows where leverage is being flushed out.
Frequently asked questions
What does it mean when a position is liquidated?
The exchange has automatically closed your leveraged position because your margin could no longer cover the losses. You normally lose the margin committed to that position.
At what percentage drop does 10x leverage get liquidated?
Roughly a 9–10% move against you, depending on the exchange’s maintenance margin rate and fees.
Is a stop-loss better than liquidation?
Yes. A stop-loss lets you exit at a price you choose with part of your margin intact; liquidation closes the position at the exchange’s level and usually costs the whole margin plus fees.
Do I owe money after liquidation?
On most major exchanges, no — an insurance fund covers losses beyond your margin. You lose the margin on the position, and with cross margin potentially more of your balance.
Put it into practice
Live charts, an economic calendar and trading calculators — free with a JustCharts account.
See live crypto liquidationsThis article is for education only and is not financial advice. Trading leveraged products carries a high risk of losing money. Contract sizes, trading hours and leverage limits vary by broker and country — always check your own broker’s specifications.