When you trade with leverage or borrow against crypto, you post collateral to secure the loan. If the market moves against you far enough, your collateral no longer covers the position, and the platform automatically sells it to repay the debt before it can go underwater. That forced sale is a liquidation, and it usually means losing most or all of the collateral you put up.
Each leveraged position has a liquidation price, the level at which this trigger fires. Higher leverage puts that price closer to the entry, so there is less room for the market to breathe. In crypto's fast markets, a sharp move can blow through it in moments. Waves of liquidations can even feed on themselves: forced selling pushes prices lower, which triggers more liquidations, a cascade that can accelerate a crash.
Liquidation is the concrete danger that makes leverage so risky, and it also applies to DeFi lending, where under-collateralised loans are liquidated by bots. Understanding your liquidation price is essential before using any leveraged product. Crypto House covers this as risk education, not as advice to trade on margin. Cascades like this are one reason crypto sell-offs can feel so violent and sudden compared with calmer, less-leveraged markets.
Portfolio and Risk Management
Key takeaways
- Liquidation is the automatic, forced closing of a leveraged or borrowed position when collateral runs too low.
- Every leveraged position has a liquidation price, and higher leverage moves that trigger closer to entry.
- Cascading liquidations can amplify sharp market moves, turning a drop into a faster crash.
Liquidation — questions fréquentes
What is a liquidation price?
It is the price level at which your collateral no longer covers a leveraged or borrowed position, so the platform force-closes it. Higher leverage puts this price closer to your entry, leaving less room for the market to move against you.
Can I lose more than my deposit in a liquidation?
On most platforms liquidation is designed to close the position before that happens, so you typically lose the collateral rather than more. But in extreme, fast-moving markets, understanding each platform's specific rules matters.
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