LIQUIDATION
EXPLAINED

What Is Liquidation

Liquidation occurs when your margin (collateral) is insufficient to cover the unrealized loss on an open position. At that point, the exchange's liquidation engine automatically closes your position to prevent your account from going negative. You lose the margin allocated to that position — often entirely.

Liquidation is not a stop loss. A stop loss is a limit order you set intentionally at a level where your thesis is wrong. Liquidation is what happens when you don't use a stop loss and price moves far enough against you that the exchange forces the close on its terms — at a worse price, with additional fees.

The Liquidation Price Formula

For a LONG position in isolated margin: Liquidation Price = Entry Price × (1 − (1 ÷ Leverage) + Maintenance Margin Rate). At 10x leverage with a 0.5% maintenance margin rate, a $95,000 BTC entry liquidates at approximately $85,975. A 9.5% adverse move. At 20x leverage, liquidation occurs around a 4.5% adverse move.

How to Never Be Surprised by Liquidation

The only reliable protection against unexpected liquidation is position sizing from the invalidation level — not from the leverage multiple. If your invalidation is $93,500 on a $95,000 BTC entry and you size correctly so that hitting $93,500 costs you exactly 1R ($100 on a $10,000 account), your liquidation price is irrelevant. Price will stop you out at $93,500 — far above the liquidation level — before the margin is ever threatened.

Traders get liquidated when they skip the stop loss, assume the trade will reverse, and watch the position move against them until the exchange forces the close. Systematic signal frameworks prevent this by design — every signal card includes an invalidation level, which is the price at which any rational trader should exit.