"Liquidation" is the most dreaded word for futures traders. Understanding how the forced liquidation mechanism works is the first step to protecting your funds.
What Is Forced Liquidation?
Forced liquidation, commonly known as "getting liquidated" or "getting rekt," occurs when your position's losses reach a point where your margin is no longer sufficient to maintain the position, and the system automatically closes it.
After logging in through the Binance official site, you can see the "Liquidation Price" in your position details. Download the APK and the app will send warning notifications as you approach the liquidation price.
What Triggers Liquidation?
Liquidation is triggered when your margin ratio falls below the maintenance margin rate.
In simple terms:
- You put up a certain amount of margin when opening a position
- As the price moves against you, your unrealized losses increase
- When losses grow so large that your remaining margin can't maintain the position, the system liquidates you
How Is the Liquidation Price Calculated?
The liquidation price depends on three factors:
- Your entry price
- Leverage multiplier
- Margin mode (Cross/Isolated)
Rough estimate formula (for longs): Liquidation price β Entry price x (1 - 1/leverage)
Example: 10x leverage, long BTC at 65,000 Liquidation price β 65,000 x (1 - 1/10) = 65,000 x 0.9 = 58,500
This means BTC dropping about 10% would trigger liquidation. The actual liquidation price factors in fees and maintenance margin, so it will be slightly higher than this estimate.
Price Drop Tolerance at Different Leverage Levels
| Leverage | Approximate Drop Before Liquidation (Long) |
|---|---|
| 3x | ~33% |
| 5x | ~20% |
| 10x | ~10% |
| 20x | ~5% |
| 50x | ~2% |
| 100x | ~1% |
| 125x | ~0.8% |
As you can see, the higher the leverage, the less volatility you can withstand and the more easily liquidation occurs.
Cross vs. Isolated: Liquidation Differences
Isolated mode: Only the assigned margin is used for calculation. The liquidation price is fixed. Liquidation only costs you that position's margin.
Cross mode: Your entire wallet balance is used for calculation. The liquidation price is further away (harder to get liquidated), but when it does happen, the losses are much larger.
How to Avoid Liquidation
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Lower your leverage: The most direct and effective method. Lower leverage gives you more buffer.
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Set stop-losses: Set stop-losses before the liquidation price. Taking a voluntary stop-loss is far better than being forcibly liquidated. With a stop-loss, you keep most of your capital; with liquidation, you may lose everything.
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Control position size: Don't use all your funds to open positions. Keep sufficient reserves as a safety cushion.
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Monitor liquidation price: The first thing to check after opening a position is where the liquidation price sits and whether it's reasonable.
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Add margin: If the price approaches your liquidation level, you can add margin to push the liquidation price further away (but be cautious -- don't throw good money after bad on a losing position).
Binance's Insurance Fund
When a user is liquidated, if the closing price is better than the bankruptcy price, the surplus goes into the insurance fund. Conversely, if the closing price is worse than the bankruptcy price, the insurance fund covers the gap. This mechanism protects counterparty traders.
Remember: the best anti-liquidation strategy isn't adding margin -- it's controlling your leverage and position size properly from the start.
Android: direct APK install. iOS: requires overseas Apple ID
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