In crypto markets, traders often use leverage to increase potential profits. However, this always comes with higher risk – the risk of liquidation.
Liquidation happens when your position moves against you and your margin (collateral) is no longer sufficient to cover losses. The exchange automatically closes the trade to prevent you from going “negative” against the platform.
In other words – liquidation is a trader’s bankruptcy on that particular trade.
The good news – it can almost always be avoided by following certain principles.
1. Don’t Use Excessive Leverage
Most beginners make the mistake of using 20x, 50x, or even 100x leverage.
Problem – the higher the leverage, the smaller the price movement needed to liquidate you.
At 100x leverage, a 1% adverse price move is enough to wipe out your position.
At 5x leverage, you have much more breathing room (~20% adverse move before liquidation).
Tip:
Beginners: no more than 3–5x leverage.
Experienced traders: higher leverage is possible, but only with precise strategy and stop-loss.
2. Always Use Stop-Loss
Stop-Loss is one of the simplest tools to avoid liquidation.
Instead of waiting for the exchange to forcibly close your trade, you set a point to exit with smaller losses.
Example:
Open a LONG position on BTC at $60,000.
Set Stop-Loss at $58,800 (-2%).
If the price drops, you lose only 2%, not your entire account.
3. Don’t Put Everything in One Trade
Many beginners invest 100% of their capital in a single position.
This is suicide – one bad trade = account liquidation.
Better approach:
Risk 1–5% of total capital per trade.
Example: with 1,000 USDT, risk only 20–50 USDT per trade.
This allows surviving several bad trades in a row without “leaving the game” on the first mistake.
4. Use Isolated Margin
Futures trading usually has two modes:
Cross Margin – your entire account balance is used as collateral. If the position goes against you, you could lose your whole account.
Isolated Margin – only the specific position uses its own collateral. Losses are limited.
Tip: Beginners should always use Isolated Margin. This protects your account from full liquidation in one trade.
5. Check Liquidation Price Before Trading
When opening a leveraged position, the exchange immediately shows your liquidation price.
If it’s too close to the current market price, don’t take the trade.
Safe distance – at least 5–10% from the current price, especially with larger capital.
Example:
BTC price = $60,000
Liquidation at $59,400 → too close (one small move wipes you out)
Liquidation at $55,000 → much safer, gives room to “survive” fluctuations
6. Don’t Trade Against the Trend
Most liquidations occur when people open positions against the trend.
If the market is in a clear uptrend, a SHORT position is risky.
If the market is falling, a LONG position accelerates liquidation.
Tip: Trade with the trend, not against it.
7. Pay Attention to Funding Rate
If trading perpetual futures, understand the funding rate mechanism.
Positive funding → more people LONG → risk of sudden price drop (liquidating LONG traders).
Negative funding → more people SHORT → risk of sudden price spike.
Tip: Avoid huge positions when funding is highly one-sided. It usually signals a market “shakeout” is coming.
8. Keep a Safe Reserve in Your Account
Never use 100% of your capital as margin.
Leave at least 30–50% in reserve.
This gives a “buffer” if the market moves slightly against you.
9. Don’t Think Like a Casino Player
Liquidation often happens because traders emotionally over-leverage or “chase losses.”
The crypto market is volatile – it can move 5–10% in minutes.
Tip: Always enter the market with a plan and risk management, not emotions.
Conclusion
To avoid liquidation, the key is risk management and discipline:
Use small leverage (max 3–5x for beginners).
Set Stop-Loss for every trade.
Don’t risk your entire capital in one trade.
Use Isolated Margin mode.
Check liquidation price before opening a position.
Trade with the trend, not against it.
Remember – the crypto market punishes those who ignore risk management.
A trader’s goal is not to avoid all losses, but to avoid a single liquidation that destroys the entire account.