Any position opened with <a href="/glossary/leverage/">leverage</a> is really a loan against collateral. The platform tracks a maintenance margin, the minimum equity the position must retain, and publishes a liquidation price at which that threshold is breached. Cross the line and an automated engine sells or buys back the position on your behalf. The higher the leverage, the smaller the price move needed to reach that line, which is why heavily leveraged positions can be closed out by an ordinary intraday wobble.
Lending protocols work on the same principle without the trading. Borrow against collateral, let the collateral's value fall relative to the debt, and anyone running a liquidator bot can repay part of your loan and claim a slice of your collateral as a fee. The process is permissionless and unsentimental; there is no support desk to appeal to and no grace period while you find more funds.
Two effects make this harsher than the arithmetic suggests. Forced closes are market orders, so they execute into whatever depth exists and can suffer heavy <a href="/glossary/slippage/">slippage</a> in a fast market. And liquidations feed each other: forced selling pushes the price down, which triggers the next tier of positions, producing cascades that overshoot. Be blunt with yourself about this. Money in a leveraged position is money you can lose entirely, and quickly.
Portfolio and Risk Management
Puntos clave
- Liquidation is automatic and impersonal, so knowing your liquidation price before you open a position matters more than any exit plan you intend to follow.
- Higher leverage shrinks the price move required to wipe out your margin, turning ordinary volatility into a total loss.
- Cascading liquidations mean the actual fill can be far worse than the theoretical liquidation price.
Liquidation — preguntas frecuentes
Can I lose more than the money I put in?
On many regulated derivatives venues, negative-balance protection and insurance funds are designed to stop your loss exceeding the margin posted. Not every platform offers that, and in extreme moves some use socialised loss or auto-deleveraging instead. Read the specific rules of the venue before assuming a floor exists, and treat the full margin as money you are prepared to lose.
How do people avoid getting liquidated?
The reliable lever is using less leverage, which pushes the liquidation price further away from the current market. Adding margin, setting stop-losses well above the liquidation level and keeping positions small relative to your balance all help. None of it is a guarantee, because gaps and outages can jump straight past a stop. The only position that cannot be liquidated is one you did not open with borrowed funds.
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