Liquidation
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In Brief
Liquidation is the automatic closure of a leveraged trading position when losses consume the trader's margin, triggered at a predetermined liquidation price to prevent further loss to the exchange or protocol.
What Is Liquidation in Crypto Trading?
Liquidation is the forced closure of a leveraged position when the trader's margin is no longer sufficient to cover the position's losses. It is an automatic mechanism built into
every leveraged trading platform — centralized or decentralized — to prevent a trader from losing more than their collateral.
Liquidation is one of the most important concepts to understand in perpetual futures trading. Because perps allow leverage of 10x, 50x, 100x, or more, a small adverse price move can
exhaust a trader's margin quickly.
How Does Liquidation Work?
A trader opens a leveraged position (long or short) using collateral (margin).
The platform calculates a liquidation price based on the leverage, position size, and maintenance margin requirements.
As the market price moves, the platform tracks the position's unrealized P&L in real time.
If the market price reaches the liquidation price, the position is automatically closed by the platform's liquidation engine.
The trader's remaining margin (if any) is returned. In some cases, additional losses are covered by a platform insurance fund.
Liquidation Price Example
Assume a trader opens a long BTC position with the following parameters:
BTC price: $60,000
Margin: $1,000
Leverage: 10x
Position size: $10,000 (0.1667 BTC)
If BTC drops approximately 10%, the $1,000 in margin is wiped out and the position is liquidated at roughly $54,000.
| Leverage | Approx. Liquidation Distance |
|---|---|
| 2x | ~50% |
| 5x | ~20% |
| 10x | ~10% |
| 25x | ~4% |
| 50x | ~2% |
| 100x | ~1% |
| 200x | ~0.5% |
Higher leverage drastically reduces the distance to liquidation.
Key Properties of Liquidation
Liquidation Price
The specific market price at which the position is automatically closed.
Maintenance Margin
The minimum margin required to keep a position open. Once margin falls below this level, liquidation is triggered.
Partial Liquidation
Some platforms liquidate a portion of a position before closing it entirely, giving the trader a chance to recover.
Cross vs Isolated Margin
In isolated margin mode, only the margin allocated to that single position can be liquidated. In cross margin mode, the entire wallet balance is at risk of liquidation.
How to Avoid Liquidation
Use lower leverage — more room for adverse price movement
Set stop-loss orders — manually close the position before it reaches the liquidation price
Add margin — top up collateral to push the liquidation price further away
Monitor funding rates — high funding costs can eat into margin over time
Use isolated margin — contain liquidation risk to a single position
Liquidation and Trust Wallet
Trust Wallet connects users to Hyperliquid and Aster DEX for perpetual futures trading. Each platform has its own liquidation engine, margin requirements, and risk parameters. Users
should carefully review the liquidation price displayed in the trading interface before opening any leveraged position. Perpetual futures trading carries substantial risk of loss.