What is liquidation?

Liquidation is one of the most important concepts to understand before trading Perps. It's the mechanism that automatically closes your position when your margin can no longer cover your losses, and it can happen fast, especially with high leverage.

When does liquidation happen?

Every leveraged position has a liquidation price, the price level at which your margin would be effectively exhausted. If the market hits that level, your position is closed automatically. You lose the margin you put in, but you don't go into negative balance.

Example: You open a long position on ETH with $100 margin at 10× leverage. Your liquidation price might be 10% below your entry. If ETH drops to that level before you close the position, it's liquidated and your $100 margin is lost.

Why does it exist?

Liquidation protects both you and the broader trading system. Without it, losses on leveraged positions could exceed the margin you deposited, creating debt. Liquidation ensures positions are closed before that happens.

How to reduce your liquidation risk

There are a few practical ways to manage this:

Use lower leverage. The lower your leverage, the more price movement your margin can absorb before hitting the liquidation threshold.

Set a stop loss. A stop loss automatically closes your position at a price you define, ideally well before liquidation becomes a risk.

Monitor volatility. In fast-moving markets, prices can swing quickly. Staying aware of market conditions helps you react before it's too late.

Your liquidation price is always visible in your position details, so you're never in the dark about where the threshold sits.