What is Liquidation (Crypto Futures)?

The forced closure of a leveraged position when losses consume its margin — the exchange closes you out, and the position cannot recover.

Liquidation is the forced closure of a leveraged futures position when its losses have consumed the margin backing it. Every leveraged position has a liquidation price calculated by the exchange; if the market touches it, the position is closed automatically, the margin is gone, and no recovery in price afterwards matters. The higher the leverage, the closer that price sits to entry — at 100x, a move of well under 1% against you is fatal, before fees are even counted.

Liquidations also shape the market itself. Clusters of liquidation prices form pools of forced orders above and below the market, and price is repeatedly drawn toward them — a cascade of liquidations provides exactly the liquidity large players need to fill size. The defence is unglamorous: use low leverage, size positions from a stop loss you set yourself, and never let the exchange's liquidation engine be your risk manager. Your stop should always act long before liquidation could.