Leverage lets traders control a bigger position than their balance would allow, but it comes with a hard edge: liquidation.
When a leveraged trade moves far enough against you, your margin can no longer cover the loss and the exchange closes the position automatically. That forced close is a liquidation, and it can wipe out the margin you posted.
A few things worth knowing before you trade on margin:
- Your liquidation price is set by your entry price, leverage and margin. Know it before you open the trade.
- Longs are liquidated when the price drops; shorts are liquidated when it climbs.
- Big liquidation waves can feed on themselves, pushing prices further and triggering more forced closes.
- Lower leverage, smaller positions and stop-loss orders are the simplest ways to stay clear of it.
If you want the fuller picture with worked examples, read Crypto Guide USA's liquidations explainer — it walks through the mechanics in plain language.
