The exchange closes the trade itself when the deposit is almost gone. Liquidation protects the exchange from you owing it money. The trade’s margin burns.

Where should a long’s stop-loss be?

Above the liquidation price, between it and the entry. A stop below liquidation never fires: the exchange closes first and takes the whole deposit.

A trade is losing and near liquidation. A friend says add margin. What really happens?

You raise the bet on the same mistake: you can lose even more. Topping up pushes liquidation away but doesn’t change that the idea failed. Better set a stop in advance and accept a small loss.

Liquidation

Lesson 6 of 16 in the course “Futures from Zero”. Free, with animations and a quiz.

The exchange closes it for you

Liquidation is when the deposit is almost gone and the exchange closes the trade at market itself. It does this so the loss doesn’t exceed your margin. The worst part: the price often touches the liquidation line and bounces right back. But your trade is already gone, and so is the margin. That’s exactly how the “got liquidated” people lose their deposits.

Work it out in advance

The exchange shows the liquidation price before you open the trade, but it helps to know where it comes from. For an isolated-margin long, roughly: entry × (1 − 1 ÷ leverage + maintenance margin). Bitcoin at $60,000 with ×10 gets liquidated around $54,300, a drop of about 9.5%. With ×50 a drop of under 2% is enough. For a short it’s mirrored, the line is above the entry.

The biggest liquidation wipeout

On 10 October 2025 the market dropped sharply on news of US–China tariffs. Within a day, according to CoinGlass, over $19 billion in positions were liquidated from more than 1.6 million traders. That’s a record in crypto history. Many had their liquidation price just a few percent from the entry, while altcoins fell by tens of percent overnight. High leverage in a rough market is racing without a seatbelt.

Four rules against liquidation

One: the stop-loss is always closer to the entry than liquidation. Then you exit with a small loss before the exchange takes the whole deposit. Two: while learning, leverage ×2 to ×5. Three: isolated margin, so one trade can’t eat the whole account. Four: don’t top up margin on a losing trade to “push back” liquidation. You’re just giving the market more money for the same mistake.

Check yourself

What is liquidation?
Correct answer: The exchange closes the trade itself when the deposit is almost gone. Liquidation protects the exchange from you owing it money. The trade’s margin burns.
Where should a long’s stop-loss be?
Correct answer: Above the liquidation price, between it and the entry. A stop below liquidation never fires: the exchange closes first and takes the whole deposit.
A trade is losing and near liquidation. A friend says add margin. What really happens?
Correct answer: You raise the bet on the same mistake: you can lose even more. Topping up pushes liquidation away but doesn’t change that the idea failed. Better set a stop in advance and accept a small loss.

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